Contractor body backs T&S loophole closure

Managed personal service company contractors who are under ‘Supervision, Direction or Control’ have been headed off from claiming tax relief on T&S expenses even if they are outside IR35.

Until publication late last month of Finance Bill 2016, it had been understood that merely not being caught by IR35 was enough to retain eligibility for relief on travel and subsistence costs.

But according to the Freelancer & Contractor Services Association, it would have been possible for managed PSCs outside the rule to still receive relief despite being ‘SDC’ – the criterion put in place to curb eligibility.   

“From the outset we have been concerned that the T&S reforms could encourage inappropriate use of personal service companies, knowingly or unwittingly”, says FCSA chief executive Julia Kermode.

“What we ended up seeing is some intermediaries encouraging contractors to work through a PSC, managed by the intermediary, and if outside of IR35 were still technically eligible for the T&S relief.  It is this organised misuse of personal service companies that has now been addressed.”

Kermode says it is unsurprising but positive that the government has acted, yet reminded that the vast majority of PSCs are run compliantly by people ‘in the know’ about how they are operating.

The vast majority of PSCs are also not managed, and therefore do not have to consider SDC to determine if they can keep claiming T&S expenses, as long as they are outside IR35.

"Contractors operating through their own limited company need not consider the SDC test," said Chris Bryce, chief executive of The Association of Independent Professionals and the Self-Employed.

"The Treasury has confirmed to us that contractors can continue to claim tax relief on their travel and subsistence expenses providing their engagement is not caught by IR35."

Separately, Finance Bill 2016 also introduced measures relating to the personal allowance, tax avoidance, corporation tax, the new interest-free allowance and the permanent establishment of the OTS.