HMRC Consultation-IR35 and Wear & Tear Allowance

Following the announcements in the Summer Budget re IR35 and the Abolition of the Fixed Wear & Tear Allowance for Residential Lettings, a series of HMRC consultations with interested parties have been opened.

The briefs for these throw some light on HMRC thinking re these issues.

IR35 HMRCIR35 – Intermediaries Legislation

The budget said that

“The Government recognises that many individuals choose to work through their own limited company. However, where people would have been employees if they were providing their services directly, anti-avoidance legislation (known as IR35) introduced in 2000 requires that they pay broadly the same tax and NIC as other employees.  The Government has reiterated it is clear that the IR35 provisions are not effective enough. Non-compliance in this area is estimated to cost over £400m a year.

The Government has asked HMRC to start a dialogue with business on how to improve the effectiveness of existing IR35 legislation. The Government is keen to find a solution that protects the Exchequer and improves fairness in the system”. Full transcript of the Summer Budget can be found here.

The discussion document for the HMRC consultation states that the abolition of IR35 is not considered to be an option for the government, but that the legislation needs to be straightforward and easy to apply. Some commentators have interpreted this as signalling that the Government is open to a fundamental reform of the legislation. The consultation closes at the end of September 2015

Rental Property HMRC ConsultationReplacing Wear and Tear Allowance

Traditionally HMRC have allowed a 10% flat rate for wear and tear of furnishings in a let residential house. The budget proposed that this be replaced with an allowance based on actual expenditure. HMRC have now stated that the relief will apply to landlords of furnished, part-furnished and unfurnished properties. The relief will not apply to holiday letting businesses or commercial properties as these businesses receive relief through the Capital Allowances regime.

 

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