The Chancellor announced during the Budget statement that there will be a clamp down on tax relief provided by employment intermediaries and umbrella companies that abuse travel & subsistence rules, following a further consultation with interested parties this year.
However, HMRC then released the following statement which provides further clarification.
“Any changes will take place after this full and formal consultation and would be intended to take effect from 6 April 2016 and legislated for in a future Finance Bill.
The Chancellor also announced; the government wants employment intermediaries to provide workers with greater transparency on how they are employed and what they are being paid, with the Department of Business, Innovation and Skills consulting on proposals later this year.
The proposals announced are different from those included in the discussion document released in December 2014 and reflect the feedback and evidence HMRC received in response to that document.
The current proposal will remove workers’ entitlement to claim tax relief for travel and subsistence for their home to place of work where:
- The worker is supplied by an intermediary to a third party (an intermediary will include umbrella companies and personal service companies);
- The worker is broadly subject to direction and control by that third party.
So somebody who broadly looks like an employee will not be entitled to relief whereas someone who looks like a self-employed worker will continue to be entitled to relief. This approach aligns with that taken for agency workers in the Finance Act 2014.
- HMRC will be consulting on the detail of the proposal over the summer.
- In addition BIS will be consulting on ways to ensure that workers who are provided to clients through an intermediary will have greater transparency on how they are employed and what they are being paid.”
So what we have seen is a series of actions that have been systematically dismantling the basis on which the majority of PAYE umbrella companies exist and it is clear that with HMRC and BIS involvement, the risks involved in working with those companies remain ever present.
What is also clear is that employment intermediaries and umbrella companies are being treated as a special case by the government. That the Chancellor specifically mentioned them when speaking of tax avoidance is telling. To summarise then, all employees will be subject to new rules on tax relief for travel and subsistence expenses when the outdated current rules are amended in April 2016. However, agency workers are going to be subject to a different set of rules under proposals which were not included in the consultation document published in December 2014.
The most effective action is the one which takes the least effort but which has the greatest effect, and this certainly seems to be the strategy that has been adopted by the government against umbrella companies and the agencies which use them to pay workers.