There has been much debate over recent weeks surrounding HMRC’s consultation on travel and subsistence relief for contractors.
The 2014 Autumn statement made it clear that there is a determination to review the present rules by restricting or even eliminating the ability of contractors to claim relief on travel and subsistence costs, particularly in relation to umbrella company employees, in order to “level the playing field” and stamp out a perceived unfair advantage gained by the contractor working models used in the UK.
Analysis of the discussion document (Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses – 16 December 2014) perhaps reveals the main driver behind the review – an estimated £400m in perceived lost income tax and NICs through travel and subsistence relief claims.
What will the proposed changes mean?
Speculation within the industry is rife. There is much supposition but what is certain is that HMRC is looking at two possible options which would have differing impacts were they to be adopted:
Option 1 – would impact upon both PSCs (personal service companies) and those contractors operating under an overarching contract of employment (OAC), through umbrella companies.
Option 2 – on the other hand would restrict claims only to those with OACs.
One of the UK’s leading umbrella accounting companies, Danbro, endeavour to keep on top of all regulations. Managing Director, Damian Broughton comments:
“We applaud any measures that will tighten up the present regime and clamp down on the minority of umbrella companies that seek to exploit the rules.
“We do not feel that a wholesale eradication of the ability to claim travel and subsistence relief, where workers are genuinely engaged upon a series of multiple assignments, is appropriate.
“The rules as they presently stand facilitate a flexible and mobile workforce, a vital element of the UK economic recovery and penalising genuine temporary workers would be detrimental to the country as a whole.”
Danbro believe that HMRC should concentrate efforts and resources on the regulation of non-compliant umbrella companies rather than change the rules across the board.
In conjunction with Professional Passport, the FCSA. Ernst and Young and a number of other stakeholders, Danbro are working hard to provide a robust, evidence-based response to the discussion document as part of the consultation process.
“We met representatives from HMRC in person at Parliament Street just before the Christmas break. We have submitted our responses to the 18 questions specifically posed by HMRC to a collaborative response, and we are working on a more detailed reply to be submitted by the deadline of 10 February 2015.”
The discussion document itself acknowledges that the Government “wants to ensure that any action it takes does not undermine genuine arrangements” and that “the change does not undermine the effective operation of the temporary labour market or of intermediaries that do not misuse travel and subsistence relief.”
Danbro draw some comfort from those sentiments. Damian adds:
“We agree wholeheartedly with them. We will be doing our level best to highlight the ways in which the proposed changes would have a negative impact upon the contractor market.”
Change in some form seems inevitable and it is likely therefore that the market will have to change too. Damian comments: “We are experts in dealing with change and pride ourselves in adapting to shifts in the marketplace in ways that benefit contractors, agencies and therefore UK PLC.”
Whilst it is perhaps premature to speculate too deeply, industry commentators have suggested that there may well be a move towards an increased use of PSCs.
Chris Oxley, one of Danbro’s chartered tax advisors and qualified accountants, concludes: “Danbro is well established in providing first class services to our PSC clients, we are aware that reform of the rules may see a growth in this option and we have made sure that we will be able to deal with a substantial increase in the number of contractors choosing to use this way of working.”