Several weeks on, the contracting and freelancing sector has had time to digest George Osborne’s ‘emergency’ summer Budget. In case you missed it, the chancellor had several nasty surprises up his sleeve on 8^th July as he delivered the first all-Conservative Budget since November 1996. In what was described by industry commentators as a four-pronged attack on limited company contractors, the MP for Tatton announced that: 

• A new tax on dividends would be introduced, with a view to tackling “tax-motivated incorporation”

On Friday HMRC released the discussion document inviting contributions from the industry on how best to police the murky area of disguised employment.

At first glance the consultation seems conflicted proposing two equally unsatisfactory options and then asks for someone else to come up with the magic solution for this thorny issue.

Perhaps the most concerning element of the document can be found on page 8 where it is suggested that the engaging party rather than the PSC be held responsible for the deduction of TAX and NI exactly as they would for a normal employee. Based on how open to interpretation the current legislation is and how few successful cases HMRC bring against contractors it is surely unfair to expect the engager in these circumstances to make that decision and then enforce it onto a supplier that they want to keep on side.

A review of today’s Summer Budget (8^th July 2015) highlights the following key points that could affect Umbrella Company workers or contractors/freelancers who operate through their own limited company :

Personal tax

Employment intermediaries and tax relief for travel and subsistence – As announced at March Budget 2015, the government has published a consultation document alongside the Summer Budget on detailed proposals to restrict tax relief for travel and subsistence for workers engaged through an employment intermediary, such as an umbrella company or a personal service company. The changes will take effect from 6 April 2016. (Finance Bill 2016)

IR35 reform – The government will engage with stakeholders this year on how to improve the effectiveness of existing intermediaries legislation (‘IR35’) which is designed to protect against disguised employment. A discussion document will be published after Summer Budget 2015.