Expat contractors and consultants working under constant fear of changing tax rules can relax – for a while at least.
The government has announced IR35 rules will not change until after April 2016 at the earliest after months of rumours about the tax law.
HMRC confirmed no new measures are planned for the Finance Bill 2016, which pushes any decision date beyond April.
Also, as wide-ranging tax rules like IR35 are unlikely to change in the middle of a tax year, no changes are expected before April 2017.
Introduced a decade ago by Labour, IR35 is a poison chalice for HM Revenue & Customs (HMRC) and the Chancellor George Osborne.
New rules go on back-burner
The intention was to level the playing field between contractors working for their own companies and employees, as contractor companies provided opportunities for tax breaks that are unavailable to other workers.
IR35 has become a complicated compliance area for tax as a succession of court cases and changes to regulations have left a set of complex rules that seem easy to work round for contractors and recruitment agencies.
This week, HMRC met contractor industry representatives and confirmed no change in the rules is on the way in the next Budget.
However, this is more of a delay than a reprieve as The Treasury and Office of Tax Simplification are reviewing self-employment tests and have other legislation in the pipeline that will slash the amount of business expenses contractors can claim.
New rules ban home to work travel
IR35 already excludes training costs – and from April 2016 travel costs from home to work are banned as well.
The travel ban will have a massive impact on contractors and consultants living in the UK but take jobs overseas because if they are deemed under the ‘supervision, direction and control’ of an employer or recruitment agency, they cannot offset travel costs against earnings as a business expense.
The rule will not affect expats who are not resident in the UK who work overseas.
Contractors working in IT, financial services, the public sector, oil, gas and engineering are most affected by IR35.
The government started to scrutinise IR35 after public sector consultants in the National Health Service and TV celebrities employed by the BBC were discovered avoiding paying tax on their earnings.
After cleaning up the public sector, the Treasury is now examining ways to stop tax avoidance by contractors in the private sector.
