Our meeting with HMRC to discuss the T&S changes due in April 2016.

The contracting industry has been in something of a turmoil since the proposed legislation changes to Travel and Subsistence were announced. One would hope that a trip up to Westminster to meet with the authors would help clarify matters but several AUCAE members were left flummoxed following a meeting with HMRC last week.

The legislation, which will affect both umbrella contractors and PSC contractors who are found to be inside IR35, is based on one ‘simple’ premise – if you are under supervision, direction or control, you can’t claim for tax relief on your T&S expenses. So, all we really needed to do was have a read through the case law in HMRC guidance, find out what evidence would be needed to prove status and bob’s your uncle! You would think wouldn’t you but no.

Firstly, the legal guidance from HMRC’s own Employment Status Manuals cites two cases (Market Investigations v Minister of Social Security: ESM0526 and Bhadra v Ellam: ESM2005), the transcripts from which are not actually available on line and cites two other cases in which there was found to be SDC but the worker was found not to be an employee (Ready Mixed Concrete v Minister of Pensions and NI: ESM7030 and HMRC v Talentcore: ESM7315).

When questioned about this HMRC’s representatives said that the outcome of the cases were not relevant but it was the judges’ comments on SDC that should be considered. In the Ready Mixed case MacKenna J said: “An obligation to do work subject to the other party’s control is a necessary, though not always a sufficient, condition of a contract of service (contract of employment). If the provisions of the contract as a whole are inconsistence with its being a contract of service, it will be some other kind of contract”.

So, that doesn’t really help us! In Talentcore, the only real references to SDC in the appeal were: “..there is an express finding that they [the contractors] would be working alongside the regular staff and be subject to the same control as such staff” and “…there was little supervision in practice but the FTT found that World Duty Free would be in a positon to give directions to these consultants” And yet, the workers were found not to be employees for tax purposes, so I am really not sure how that helps either.

Employment status has always been a thorny issue, in fact the OTS was quoted as saying that if they cracked it they would move onto World peace as they would obviously be on a roll! Despite this umbrella companies, accountants, contractors, agencies and clients are supposed to make a declaration using only one of the number of traditional determining factors without any useful guidance from HMRC. We have been advised that guidance will be forthcoming sometime towards the end of March – about a fortnight (if we’re lucky) before the legislation comes into force.

This subject exhausted and leaving all concerned desperately searching for a wall to bang their heads against, we moved on to the question that would be most crucial for agencies and umbrella companies – what would count as tangible evidence that SDC did not exist? (It was pointed out that expecting the tax payer to prove that something doesn’t exist was a tad unfair but still). This conversation was shorter and, in a nutshell, we were given no guidance whatsoever despite repeatedly asking the same question; we were merely referred to the legislation. Possibly out of desperation at this point, we questioned whether or not HMRC would concede that certain groups of workers would be extremely low risk e.g. a project worker brought in to a company where the skills he possessed were not to be found amongst the permanent workforce.

It was agreed that it was possible that certain groups of workers could fall outside of the legislation. Feeling that we were getting somewhere at last, we asked HMRC whether they would then confirm that this was the case if we provided examples. We were advised that they would not ‘give clearance’ on anything which basically means that we could present our arguments but they would tell us whether our determination was correct.

So, dear reader, I was hoping that a 2 hours meeting with HMRC’s representatives would have allowed me to provide a useful update on the forthcoming changes. Unfortunately, I left with no more clue on how to proceed than I arrived with. And a nasty headache. There seems to be no general consensus within the industry on the way forward and yet there are any number of ‘schemes’ being marketed which purport to ‘get round’ the legislation.

MSC’s seem to be making a come-back, presumably from individuals who don’t remember the 2007 legislation stopping them. EDM’s seem quite popular and new versions of EBT’s (combined with employee share schemes) are popping up all over the place. Some agencies are saying that everyone should go PSC and some are pushing their contractors towards umbrella companies. Whilst it’s true that PSC’s are exempt from this legislation unless their contract and working practices put them outside IR35, it’s worth pointing out that if you’re found to be inside IR35, this legislation will then come into force so you get a double whammy; repaying both unpaid taxes and tax relief from T&S.

One thing we can say about all of this, I believe without contradiction, is that everything is still as clear as mud.

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