The Government is to take action against employment businesses who abuse expenses tax relief rules, and aims to create a ‘level playing field’ for umbrella payroll providers. But will contractors be affected?
8th July 2015 Update: Following the summer Budget, the Government released a consultation document on the proposed removed of tax relief on travel and subsistence expenses for contractors who are under the ‘supervision, direction or control’ of their client. Read our dedicated article here.
On Page 61/62 of the Budget 2015 Report, the Government concludes that the way some employment firms are using overarching contracts of employment to allow some temporary workers and their employers to benefit from tax relief for home-to-work travel expenses is unfair.
As a result, travel and subsistence relief will be restricted for umbrella or limited company workers who are deemed to be under the ‘supervision, direction and control of the end-user’.
These new rules are expected to take effect from April 2016 following a consultation period.
Understandably, those professional firms operating in the umbrella market – the big names in the IT contracting industry – will be pleased to see further action against unscrupulous providers, but so far, little detail has been provided on how such changes will be implemented in practice.
IPSE’s Director of Policy and External Affairs Simon McVicker says that he is concerned that contractors genuinely working in business on their own account may have to prove their ’employment status’ to remain unaffected by the proposed expense changes.
“We hope that there will not be an onerous or unfairly high burden of proof to do this and we have reservations about how this can be done in a way which is fair, proportionate and easy to comply with. In the past, new legislation such as the ‘onshore’ rules have caused a great deal of disruption and confusion to the marketplace for contractors.”
Derek Kelly, MD of Parasol, says he welcomes any measures aimed at clamping down on unscrupulous payroll providers, although the full details on the new measures remain unknown. Kelly also explains that most of our readers should remain unaffected by this clampdown: “As skilled professionals who maintain a high degree of autonomy during an assignment, the vast majority of contractors we support do not operate under supervision, direction and control of the end-user. As such, they would not be affected by the new rules. ”
Graham Jenner, Director at NoPalaver, said that the announcement may lead to more contractors looking at incorporating their own companies, rather than using a PAYE umbrella firm:
“In the past, some workers have been reluctant to set up their own limited company and prefer operating through an umbrella company in order to avoid the albeit limited paperwork involved in running their own business.”
“Setting up their own limited company has always been a more tax-efficient model than using an umbrella company, but now it may be more attractive than ever.”
You can also read a recent article written for us by Miles Lloyd, CEO of Outsauce, in which the author expresses his concern that the Government fundamentally misunderstands the employment services industry, and all payroll firms run the risk of being tarred with the same brush if new legislation is implemented in a clumsy fashion.