HMRC admits contractor tax change legislation needs a rewrite

HMRC has admitted getting the wording wrong in new travel and subsistence legislation and will have to rewrite it.

The mistake drew criticism from the contracting sector with tax experts claiming it highlighted a chaotic and overly complex tax system that was in desperate need of simplification.

From April 6 access to travel and subsistence relief was restricted for contractors working through employment intermediaries.

Those subject to the right of “supervision, direction or control” by anyone they worked with would miss out on tax relief.

But the SDC test for intermediaries was unexpectedly replaced with the test for IR35.

Tax expert Paul Hughes, an executive member of employment intermediary trade body PRISM, said he pointed out the error soon after the Finance Bill was released.

He said: “The Finance Bill 2016 is currently making its way through Parliament and it was hoped that with clear guidance intermediaries, PSC and Umbrella, could move forward with a degree of certainty.

“Having been widely criticised for the appalling amended guidance, it now seems that HMRC cannot even write the legislation to align with Parliament’s wishes.”

The need to amend the legislation emerged in correspondence sent to industry figures this week.

An official wrote: “An unintended consequence has been identified affecting the application of these changes for most employment intermediaries, but not personal service companies and managed service companies.

“To resolve this, the legislation will be amended at the earliest opportunity.”

Mr Hughes is Group Tax and Business Development Director at I-PAYE and sits on the CBI’s employment tax working group.

PRISM has campaigned against T&S changes with its YES2T&S campaign. It followed this with calls for a strategic review of the legislation affecting contractors which was tabled as an amendment to the Finance Bill by the SNP and its Treasury spokesman Roger Mullin following meetings with PRISM. The Bill is still working its way through Parliament.

Crawford Temple, CEO of PRISM, said: “There is so much complexity in employment legislation and so many different tests that the people who write our laws cannot even get it right first time.

“What chance has the ordinary man and woman got who are not tax experts but nurses, engineers, teachers, construction workers and IT experts?

“This is proof if any were needed that PRISM’s proposed strategic review, backed by 55 cross-party Parliamentarians and a Commons intervention by a major opposition party, is long overdue. UK workers are classed officially as either self-employed or employed. The truth is there is a third way of working and contractors are losing patience waiting for government to play catch up.”

It was a view shared by Mr Hughes..

He added: “HMRC and the Government do not understand how the UK’s flexible workforce currently works and the continued shoehorning of workers into either the self-Employed or employed camps is outdated.”