Why 1,796 defunct personal service companies may be just the start

Why 1,796 defunct personal service companies may be just the start

March 20, 2017

When whatever it is that they’re protesting about gets waved through by the government, we tend to forget protesters.

Even before their arguments get discarded by officialdom, their credibility can suffer, as the IR35 petition has shown, writes Nick Hood, business risk adviser at Opus Restructuring.

But spare a thought today for all those who challenged the T&S legislation, which came into force nearly a year ago, because they fought to try to save 1,796 personal service companies (PSCs).

Without these almost 2,000 now-defunct companies, the UK’s corporate insolvency mountain would not have risen last year by a sizeable 12.6%. And without the likes of trade bodies, 50 MPs and even the odd umbrella company, the government could claim it was never warned.

Other than to HMRC, and the actual companies themselves of course, the Insolvency Service confirming this quarter that 1,796 PSCs all entered liquidation on the eve of 2017 due to “changes to claimable expenses rules” will likely shock many. Not that tax officials would tell you there’s any reason to be glum. As far as they’re concerned, by forcing these PSCs into voluntary liquidation they are shutting down not just simple traders, but also unacceptable tax arrangements that deprive the exchequer of its dues.

The collapse of the 2,000 is all because before April 2016, contractors could generally claim travel expenses to and from a client’s place of work for up to 24 months on each contract, plus accommodation costs and a reasonable amount for subsistence.

But ignoring the protests from swathes of the contractor community, HMRC tightened up the rules and started disallowing these costs as a deduction from profits. This was principally on the basis that if an employee of the contractor’s client couldn’t claim such expenses, why should a contractor who HMRC defines as being under the “Supervision, Direction or Control” of the end-user, be able to? In essence, then, this crackdown was aimed at workers within IR35.

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