Contractor Expenses To Be Next Target of Treasury

Summer 2014 will see the opening salvos in a new review of the rules of taxation when it comes to subsistence and travel expenses, with both sides expected to strongly express their views on the matter. The review, announced earlier in the year during the 2014 budget, is intended to keep the promise made by the Chancellor that he would be considering a wide range of views on what kinds of expenses should be given tax relief.

A number of contractors in the contracting sector have one on record to say that this should be seen as a massive opportunity for the sector because it will tackle head on the concerns, errors and misunderstandings that result from the current rules. Meanwhile, HMRC has let it be known they are open to establishing a new system that fits modern patterns of work but are not willing to entertain thoughts of relief on regular commuting or on travel of a private nature. Thus, they will look at methods and principles to determine how and when travel expenses qualify for deductions, focusing particularly on employment intermediaries. Consultation will also be taken on the OTS’s 4 accepted simplifications – voluntary benefits pay rolling, getting rid of £8500 threshold, and an exemption on trivial benefits and on general benefits. The Treasury will also call for evidence to be provided on the changing practices of modern remuneration and whether the tax system is keeping pace.

Nevertheless, the review of expenses is the main event, because it sets up an opportunity both for modernization of the current system and to make any abuse of that system more difficult to achieve. Derek Kelly, the MD of contractor umbrella firm Parasol, commented about the upcoming review:

“This is a golden opportunity to create an expenses system that works for all parties … it is no secret that some unethical umbrella companies encourage contractors to submit round-sum allowance claims in order to maximize their own profits … This places contractors at risk of a HMRC investigation and in our view is wholly unacceptable. Hopefully this summer’s consultation will be the first step in the creation of a fairer and more sensible system.”