In today’s Autumn Statement the Chancellor of the Exchequer, George Osborne, made just a single reference to the action the government is taking to tackle the avoidance of employment taxes. In fact, as is often the case, the devil is in the detail and the policy paper behind the autumn statement contained a raft of measures to deal with those who either seek to “disguise” their taxable earnings or structure their affairs in such a way as to minimise the employment taxes they pay.
The first series of actions is a full frontal attack on individuals who use tax avoidance schemes. HM Revenue & Customs (HMRC) will act against those using “disguised remuneration schemes” and there will be rules to close down new schemes to avoid tax on earnings. These rules could apply from today’s date effectively stopping new schemes before they have even started. The Finance Bill 2016 will introduce penalties of 60% of the tax due which will be charged where tax avoidance schemes are successfully tackled by HMRC under the existing anti-tax avoidance rules and serial tax avoiders will be named and shamed. Furthermore, new criminal offences will be introduced in the Finance Bill 2016 for tax evasion and for companies who facilitate it. Therefore it is very important that those who are undertaking tax planning, or supporting their employees who do so, take good professional advice from qualified advisers and ensure that they do not step over the line into dangerous territory.
The Government is also concerned that the employment status of workers should be correctly recognised. Those who are self-employed or operate through small or personal companies are considered to have more opportunities to reduce their tax bill than employees. The Government is concerned that the highly paid can manipulate this system and we agree that a fair amount of tax should be paid but also that those who should be treated as employees should benefit from employment rights under the law. What is more, as the economy has recovered from recession, there has been a proliferation of small businesses as the entrepreneurial spirit took hold, particularly amongst those who had seen and perhaps suffered as large businesses collapsed and individuals seized the opportunity to take their ideas to market. We believe that these small businesses should be supported and not burdened with excessive regulation and cost, therefore we hope that that the government will have taken this into account in formulating any changes to the law.
During the spring and summer the government issued a number of reports and consultation documents which set out their position and called for comment on employment status and the use of personal service companies (PSCs). The chancellor has announced that the findings of the Office of Tax Simplification’s report on employment status (published in March 2015) will be taken forward. We welcome this action which will include further research and consultation and is likely to reduce confusion. The expected changes to reduce the use of PSCs have not been announced and are limited to restrictions on tax relief for travel and subsistence costs from next April when those working for a PSC have to travel to the engaging company’s premises. Other restrictions already announced (which stop PSCs from benefitting from the £2,000 NIC exemption and the changes to the taxation of dividends) may be a disincentive for those using PSCs other than for genuine commercial purposes.
There are a raft of other changes which will affect employees, from the tax treatment of sporting testimonials to the company car tax diesel supplement - more on those issues in the next few days.