Personal Service Companies Tax Relief Axed by Chancellor


Personal Service Companies Tax Relief

It looks as if contracting will be much less lucrative in the future as the Chancellor took his axe to personal service companies tax relief.

Contractors have, traditionally, been able to claim tax relief against travel and subsistence expenses.

They could claim tax relief on the cost of their travel from their ‘office’ at their own premises to that of their client.

If they stayed overnight they could claim accommodation expenses and any further subsistence expenses that they incurred while doing so.

Contractors’ Limited Companies

Now, the Chancellor has taken this away in the Budget.

He has targeted those who are sole workers for contractors’ limited companies, i.e. those who use them as personal service companies.

In future, contractors will be unable to claim any tax relief against travel and subsistence expenses.

Other Options for UK Contractors

So, what will UK contractors do now that personal service companies tax relief is gone?

Will it now make it more attractive for them to move to onshore umbrella companies?

No, it won’t!

The Chancellor has hit them with the same measure. He’s cut their tax relief on travel and subsistence expenses too.

Indeed, as that is the main reason for being in umbrella companies for those caught by IR35, contractors in umbrella companies will be re-assessing their options and many of the UK’s 200,000 umbrella company contractors may well decide to move out of umbrella companies altogether.

Tax Vehicles for Contractors

So, where would the umbrella companies contractors go?

They might go back into Limited Companies, if they can become IR35 de-toxified.

However, as we’ve seen above, being in a personal service company is no longer as lucrative, as less tax relief can be gained.

So, what are the other options for UK Contractors?

Are there options that the Chancellor hasn’t touched?

There are indeed!

Offshore Umbrella Companies

The first one is one that the Chancellor can’t touch as it is offshore and that is Offshore Umbrella Companies which return 85% or more to UK contractors.

These operate via loans.

The contractor sends his, or her, money offshore and they are given loans in lieu of it.

They would have to pay tax on the money when it came back onshore but it never does as the contractor has got loans in lieu of it.

Offshore Loans Lapse

So, what happens to the loan? Does the contractor have to pay it back?

The answer to that is No.

Loans lapse when a person dies. They are not passed on to the next generation.

So, when the contractor eventually passes on, the loan disappears too.

Loans Not Taxable

Loans aren’t taxable.

The Government can’t make them taxable as that would play havoc with our banking system, which is a huge earner for the country, the Government and the Treasury.

There would be all hell to pay, as well, if they made loans pass on to the next generation. Conservative pensioner voters would be up in arms at that one.

Are there any more options for those losing personal service companies tax relief?

Limited Partnerships

There’s a new one called Limited Partnerships.

Limited Partnerships aren’t new as they have been used by other professions for many years.

However, they are new to contractors.

There is a slight difference to other professions in that the contractor doesn’t partner with other contractors but with a company set up by those who set up limited partnerships.

The self- employed contractor is in partnership with the company.

85% Returns

They can return up to 85% to contractors who use to efficient tax planning using those  limited partnerships.

For more details on limited partnerships click on Limited Partnerships for UK Contractors

For more details on offshore umbrella companies click on Offshore Umbrella Companies for Contractors