In the Autumn Statement 2014, the Government announced that there would be a review into the growing use of overarching contracts of employment that allow some temporary workers and their employers to benefit from tax relief for home-to-work travel expenses.
In the 2015 Budget, it was announced that a restriction would be placed on travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company. It was determined that this restriction would apply to workers who were under the supervision, direction and control of the end-user. The changes will come in in April 2016 following a consultation with HMRC and concerned parties.
In reality what does all this mean?
Firstly, it would appear that these are pretty much global changes so, although the phrase ‘employment intermediary’ has been used, which would apply traditionally to umbrella companies or recruiters, HMRC seem to have expanded the definition to include PSC’s (Single Person Limited Companies). So, in effect, all contractors who are under the supervision, direction and control of the end client will lose their entitlement to tax relief on travel expenses.
As a recruiter, the aim is to find the best candidate at the best price for an end client; sometimes this will mean tracking down a contractor who lives 100 miles away from the client’s site. After April 2016 recruiters will either have to:
1. Find a less suitable candidate who lives closer to the client’s site and risk the client being dissatisfied.
2. Negotiate a higher rate with the client to cover the candidates increased costs or risk losing the candidate to another role closer to his home.
3. Negotiate with the client to remove any rights that they may want in place to exercise supervision, direction or control over the candidate.
4. Take a reduced margin themselves so that the changes don’t impact on the clients.
However you look at it, maintaining compliance with the new legislation, in its proposed form, will leave recruiters somewhere between a rock and a hard place!
The other consideration is HMRC’s interpretation of ‘supervision, direction and control’. They summarise it by asking whether an individual has the freedom to choose how they do their work but the examples they give in their guidance are much more specific. They use an IT contractor to illustrate their point by placing them in two different scenarios:
In the first the contractor is asked to design a new website; he is completely free to design and build the website as he sees fit without anyone being able to intervene other than to ask that the website is completed, placed online and activated within an agreed timeframe. In circumstances such as these there would be no supervision, direction or control and therefore the contractor would retain the right to claim tax relief on travel and subsistence expenses.
The second scenario which, one could speculate, would be far more common the contractor is engaged to help a company’s IT team with various tasks which would be arranged and overseen by the IT Manager. It wouldn’t matter, in this case, if the IT Manager didn’t exercise his right to arrange and supervise the contractor’s work; the fact that he had that right would be enough for the contractor to lose their entitlement to tax relief on travel and subsistence expenses.
The example of an IT contractor sits rather oddly with the majority of other examples that are given in HMRC’s guidance, in fact it appears almost incongruous. The list of examples is as follows:
- Professional chef
- HGV Driver
- Supermarket delivery driver
- Security officer
- Locum pharmacist
- Care worker
- Market researcher
- Operative at recycling plant
- Drama teacher
- Product demonstrator
Recent missives from HMRC have indicated that they were beginning to accept that there was a difference between a professional contractor and what would, traditionally, have been an agency temp – this guidance may lead us to believe otherwise.