“As part of its reform of the rules for employee benefits and expenses in response to recommendations by the Office of Tax Simplification, the government will stop tax relief from being claimed on reimbursed business expenses when they are paid in conjunction with a salary sacrifice scheme. The government is also concerned at the growing use of overarching contracts of employment by employment intermediaries such as ‘umbrella companies’, which allow some temporary workers to benefit from tax relief for home to work travel expenses that is not generally available to other workers. The government will review these arrangements and publish a discussion document inviting representations from interested parties to inform potential future action.”
The Autumn Statement 2014 announced that the government would review the use of overarching contracts of employment (OAC) by employment intermediaries in the temporary labour market to take advantage of the rules for travel and subsistence expenses. The arrangements meant that some people were able to benefit from tax relief on home to work travel expenses that are not generally available to others. They indicated that this could enable intermediaries to reduce the gross taxable pay of their workers at the expense of the general taxpayer. The government stated; “The cost to the Exchequer from these practices is substantial, amounting to around £400m a year from umbrella companies alone and we know that other employment intermediaries use similar OACs, although the extent to which they are used to confer employment rights as opposed to solely being a mechanism to avoid tax is unclear.”
The announcement saw the start of what was to unravel over the next year, leaving many contractors, umbrella companies and agencies confused and concerned about how the industry would survive such fundamental changes.
Shortly after the announcement, HMRC launched a consultation looking at Employment Intermediaries – Temporary workers relief for travel and subsistence expenses again raising further unrest within the industry.
There followed a significant response from umbrella companies and industry professionals highlighting the impact that the proposed changes could have on the country’s “valuable temporary workforce”.
The coalition “Budget 2015” left many with doubt as to what the future held for umbrella companies and with no indication of what was to come, many in the industry left in limbo, until the Budget 2015 announced on 8th July that is…
With no actual mention to the changes proposed surrounding the T&S rules within the Chancellor’s speech, HMRC were quick to publish the latest consultation document aimed at shedding some light on the intentions for the implementation of the new rules in April 2016.
So what does this mean to contractors?
In December 1997 Tax Bulletin 32, HMRC stated:
"Most employees have a permanent workplace, and most employees have only one permanent workplace. But there are some employees who have nowhere that they attend regularly other than to perform tasks of limited duration or for some other temporary purpose. Many site-based employees are in this position. They do not have a permanent workplace. This means that they do not have an ordinary commuting journey, so from 6 April 1998 they are entitled to all journeys from home to the temporary workplace they have to attend to perform the duties of their employment."
So, it was never Parliaments intention to allow all temporary workers to claim for travel to and from site. It was however, Parliaments intention to allow site-based workers to claim relief that they had previously been denied.
In what appears to be a slight change in direction, HMRC have now confirmed what many in the industry originally dismissed; surprisingly the new rules will now also cover those contractors working through a PSC not just those employed by an umbrella company.
So it appears that HMRC will now be using Supervision, Direction and Control as the primary determining factor to assess if a contractor is eligible to claim tax relief on Travel & Subsistence Expenses. However what needs to be noted is that the test of “Supervision, Direction or Control”… also allows for the “right” of SDC.
As an employment status indicator, HMRC have stated that if you are Supervised, Directed or Controlled, then you are treated for tax purposes as an employed earner and as such you would not qualify for T&S Relief, however this will no doubt prove a tough test. In examples provided as part of the consultation, HMRC seem to have provided a key differentiation between the “project-based” contractor and the agency worker.
Simon Dolan, Sales and Marketing Director for Contractor Umbrella said, “It is refreshing to finally see HMRC recognise that there is a difference between true contractors and agency workers, boundaries which appear to have been blurred over the years. Contractor Umbrella has always dealt with high-end, highly skilled, project based contractors, which under the proposed changes to legislation should remain unaffected if they are working via an umbrella company.
The emphasis on determining whether a contractor is eligible for tax relief will now lie with the umbrella companies who will have to ensure that they request the relevant information with regards to Supervision, Direction and Control from the recruiters, who will, under this consultation, be obliged to provide this before T&S relief can be applied.
All in all, we believe this has been a positive outcome for the industry putting true contractors back on the map, ensuring that the government continues to support the valuable, skilled temporary workforce in the UK.”
In order to facilitate dialogue, improve understanding of the proposals and to help develop responses to the consultation, HM Revenue and Customs is planning a series of roundtables to talk with stakeholders due to take place throughout August, with the closing date for comments to the document due by the end of September.
Simon Dolan @ Contractor Umbrella Ltd.
Click here for a link to the recent changes.
Simon Dolan is the Sales & Marketing Manager for Contractor Umbrella Ltd, one of the UK’s Most Respected Umbrella Companies and founder member of AllUmbrellaCompaniesAreEqual.
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