HMRC recently released a consultation document, Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses, which looks at the use of overarching contracts (OACs) by employment intermediaries in relation to temporary workers. Views can be reported back to HMRC until 10 February 2015.
Currently the permanent workplace of many temporary workers is their home address, which means that travel from there to the place where they actually work, the temporary workplace, is in respect of a business journey and on which non-taxable expenses can be paid. Similarly daily subsistence can be claimed, which can be another boost to tax free income. Such temporary workplaces can exist for up to two years, dependent upon how contracts are structured.
Umbrella companies have been exploiting this situation and have standardised expense agreements in place that allow their employees to receive a good proportion of their incomes in expenses that are not taxable. HMRC does not like this and is looking to bring payments for anything other than what they see as genuine out-of-pocket expenses back within the tax and national insurance net.
The consultation document details proposals to:
- Treat the end-user’s premises as the permanent workplace where a worker is engaged via a third party; and
- Stop allowing OACs to give rise to a series of temporary employments, where the OAC is really a longer term employment relationship.
This would affect not only umbrella companies, but personal service companies (PSCs) as well, meaning that many contractors undertaking contracts away from their home base would not be able to claim relevant traveling and subsistence expenses between their home and the place where they work. The inclusion of PSCs in the scope of the proposals is aimed at stopping a flood of new PSC users onto the market, having forsaken umbrella companies.
Most agencies and end-users prefer to use contractors who operate via a limited company, whether that’s an umbrella or PSC, as it eliminates any potential payroll tax risk as far as they are concerned. The proposals would impact upon contractors who are genuinely self-employed who operate through a limited company and could put them at a disadvantage against similar unincorporated businesses.
The consultation addresses a symptom of the lack of a clear division between what constitutes employment and what constitutes self-employment, without dealing with the underlying problem. Like many symptom-based remedies, it could have unfortunate side-effects.
That said, it’s a consultation document and there is still the opportunity to influence any future change to the law, so please read the document and respond if you don’t like what’s proposed or can think of a better way of dealing with the matter. You have until 10 February 2015 to do so.