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Budget targets personal services companies

The 2nd Budget announcement came with a jarring attack on contractors who run their own limited companies.

Recruiters and payroll companies all knew this was the route the HMRC were going to take with the new rules making it impossible for some sectors to be directors of their own companies, and thus technically impossible to pay themselves in dividends. This temporary workforce could see themselves being worse off than being Pay As You Earn from April 2016.

It seems HMRC are being given lucrative funds to spend time investigating what they believe is tax avoidance. If you are under supervision, director or control in your role as a contractor and do not meet the IR35 rules, is now the time to wind down your company and join a PAYE solution?

HMRC has consulted on what they consider defines supervision, direction, and control;

Someone oversees the individual completing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. It is also involve helping the person where appropriate in order to develop their skills and knowledge.

Direction is someone making a person do their work in a certain way by providing them with instruction, guidance or advice as to how the work must be done. This person will often coordinate how the work is done, as it is being undertaken.

Is someone dictating what work a person does and how they go about doing that work? This includes someone having the power to move the person from one task/job to another. 
As in the past HMRC during an investigation, will consider factors such as the work being performed by the individual, whether the worker is able to decide when or where they carry out the work and whether the worker can decide how the work is done. Where there are instructions, procedures and methods as to how the work must be followed, it is likely there will be supervision, direction or control over the manner in which the services are provided.

HMRC will still consider the contractors overall arrangements, which includes terms of engagement and the way in which work is actually done in practice. It becomes dangerous however to rely solely on implied terms when the reality may be very different!

The 2nd Budget still did not reach a decision in relation to contractors’ claims for travel and subsistence allowances. Consultation continues until September for final direction on the decision.

Connect2Staff are not tax experts but are happy to take any calls and provide guidance on where to gain further information in relation to ending their self-employment if they believe they will not meet the IR35 criteria.

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