NumberMill releases T&S, salary sacrifice and IR35 update
With the final draft of the Finance Bill expected tomorrow, NumberMill has released an update on T&S, salary sacrifice and IR35.
NumberMill says that although it does not yet have the final draft of the Finance Bill, the long-promised ‘mirror’ NIC regulations have now been passed into law dealing with the way expenses payments are reimbursed where there are ‘salary sacrifice’ arrangements in place. It claims these regulations also give a strong indication of where the tax legislation is likely to go in terms of the new Travel and Subsistence rules.
The main points are as follows:
National Insurance changes
- Salary sacrifice arrangements follows the tax definition: broadly any arrangements where the level of pay depends on the level of expenses reimbursement is caught.
- All expenses payments and payments made under salary sacrifice arrangements must now be included in gross pay for NIC, unless they are allowable mileage payments for cars and motorbikes.
- This means that employees and employers NIC is payable on these amounts. This is the case even though many payments will be legitimate allowable expenses on which the employee will be able to obtain tax relief at the year end. Effectively irrecoverable NIC will be levied on these allowable expenses if they are paid under salary sacrifice arrangements.
NumberMill states it is prepared for this. It said, “The so called fixed expense model will not work, as would be a salary sacrifice. Be very wary of this model. NumberMill are ready to operate mileage only arrangements weekly with year-end P87 claims as appropriate.”
Travel and Subsistence changes
NumberMill stresses that the final tax legislation has not yet been released, however, assuming the legislation mirrors the NIC position, there have been some fundamental changes. The company stated, “It seems that HMRC have taken on board our contention that the legislation did not accurately reflect the claim that PSCs would be treated differently and subject to the IR35 test. The legislation has been softened in this respect; however separate measures have been introduced in an attempt to prevent widespread PSC avoidance of the legislation.”
The highlights are:
- PSCs are subject to the IR35 test and not the Supervision, Direction and Control test (this reflects the HMRC guidance but was not achieved by the original legislation) – this is as NumberMill anticipated
- PSCs not caught by IR35 are outside of the restrictions and can claim travelling and subsistence relief as per the existing rules (although they may still be caught by the separate salary sacrifice provisions above)- again as NumberMill predicted
- There is a new condition, however, that the PSC must not be a ‘Managed Service Company’ – again NumberMill did not under estimate the importance of this and do not operate MSC practices
- There is a new wider definition of a ‘managed service company’ specifically for this provision
- The new wide definition does not allow for the usual exemption that all the income paid to the worker is employment income
- Essentially this is likely to mean that any accountancy service provider must merely be providing legal and accounting services in a professional capacity to the PSC – providers too closely involved with PSCs will fall foul of this test – this is why it is essential that we are genuine ACCA accountants with the professional exemption – this is not an area to be handled by non-qualifieds as highly risky. Furthermore, arrangements such as multiple directors in one company, rolling of directors in Ltd Cos, utilisation of VAT surplus, and % based fees are all extremely risky practices