Industry bodies urge caution as Finance Bill is published

Last week (24 March) saw the publication of the Finance Bill, which rules that temporary workers will no longer be able to claim travel and subsistence expenses if they are under the ‘supervision, direction or control’ (SDC) of their employer – which can include agencies.

Under the legislation, those working through personal services companies who also fall outside IR35 tax legislation will continue to be able to claim.

Commenting on the new regulations, REC director of policy Tom Hadley said:

“There are no major surprises in the Bill but the recruiters should be aware of the transfer of liability onto their own business.”

“There are concerns that the changes could lead to the mass migration of temporary workers into personal service companies purely for tax reasons. However, any employment businesses found to be involved in making arrangements to avoid tax and national insurance could find itself liable for the unpaid sums, with the directors potentially being help personally liable.

“We recommend that recruiters do not rely on contractual provisions which aim to prevent the application of SDC, as the new legislation requires employment intermediaries to hold evidence demonstrating that it was reasonable to believe that SDC does not apply.

“Overall we welcome the government’s action in this area, although we would have preferred a less ambiguous test for establishing the tax status of workers. We have consistently argued the need for clarity and effective enforcement of tax rules to ensure a level playing field for recruiters. We will continue to monitor HMRC’s enforcement activities to ensure that it focuses on the worst instances of deliberate abuse rather than on compliant agencies.

“Our immediate priority is to ensure that members use the latest fact sheets and model contracts developed by the REC legal team to prepare their business, their staff and their clients for the impending changes.” 

Julia Kermode, CEO of the Freelancer and Contractor Services Association, which represents umbrella firms, said the latest amendments would prevent the organised misuse of personal service companies.

“From the outset we have been concerned that the T&S reforms could encourage inappropriate use of personal service companies, knowingly or unwittingly, within the supply chain.”  

“It may not always be the best mechanism for workers, potentially putting them into a more precarious position than previously. For example they may not be aware of the full implications; the legal and financial responsibilities as a company director that cannot be delegated. 

“In addition, the individual will not be eligible for any statutory employment rights, such as minimum wage, holiday pay, which could be an unpleasant surprise if they have previously had these benefits.” 

The new regulations are effective from 6 April 2016. REC members can find full details on the new legislation via the REC online legal guide.