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- Nick Elvin
Tax relief for travel and subsistence expenses is to be restricted for contractors who work through an employment intermediary, such as an umbrella company or PSC.
Chancellor George Osborne confirmed the measures, which would apply where a worker is under the supervision, direction and control of a third party, in his Budget speech last week.
Mr Osborne told the House of Commons that the Government “will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed”.
The new rules are set to take effect from April 6, 2016, following a formal consultation, which will most likely go ahead this summer.
IPSE, the Association of Independent Professionals and the Self Employed has urged the Government to carefully consider how it implements the new expenses rules.
Director of policy and external affairs, Simon McVicker, said: “This Budget has generally been very favourable for the self-employed. Indeed George Osborne was careful to say that these new measures ‘would not impact the genuinely self-employed’. However, we remain concerned that if this is not done correctly then independent professionals will be seriously affected.
“In particular, the new rules are likely to require those working through their own company to prove they are not under the ‘supervision, direction and control’ of their end client. 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.”
Samantha Hurley, head of external relations & compliance at APSCo, pointed out that the Chancellor’s mention of ‘agencies’ relates overwhelmingly to umbrella companies and PSCs.
She added: “Unfortunately, it is not entirely clear from the Budget report exactly what action the Government intends to take, although it talks about restricting tax and subsidy relief for workers engaged through an employment intermediary where the worker is under the supervision, direction and control of the client.
“In light of this, it’s possible that they may apply a similar test as already exists to determine the worker’s employment status for tax purposes. This seems to suggest that the Government has abandoned its original plan to abolish tax and subsidy relief for such workers, and listened to the overwhelming response from the industry to tighten the rules instead. This appears to be a more positive outcome for the recruitment sector as a whole, but we will reserve judgement while we await an official consultation.”
Tom Hadley, director of policy and professional services at the Recruitment and Employment Confederation said the Chancellor’s focus on tax avoidance by employment intermediaries would “be critical to ensuring a level playing field for recruiters who play by the rules”.
“Progress here is long overdue and such a public commitment to clamp down on agencies and umbrella companies that exploit travel and subsistence schemes is very welcome news,” he added. “It’s something we called for in our Manifesto for Jobs last Autumn and we’re glad to see the Government take action.”
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