Budget 2015 (2): Clampdown on travel and subsistence for umbrella companies

The freelancer world had been expecting an announcement on some form of tightening up on rogue agencies and umbrella companies with regard to travel and subsistence.

Consultations and wagging fingers proclaiming abuse and misuse of such schemes had set the agenda over the past few months. The compliant companies were fearful that they might be caught in yet another 'sledge hammer to crack a nut' regulation where in order to target the errant few, the baby was thrown out with the bath water (to mix my metaphors).

The Chancellor's speech from the Dispatch Box confirmed it was on his radar when he said: "....And we 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."

Although the detail of the changes is not known it is clear that there will be changes to the rules to restrict travel and subsistence relief for workers engaged through an employment intermediary or umbrella company.

The Government expects to raise £635 million in revenue through this policy change over four years.

Detail

The detailed documentation published later stated:

Budget links on UKTECH

• Budget 2015 (1): Budget speech in full
• Budget 2015: What lies ahead for freelancers?

1.250 Autumn Statement 2014 announced that the Government would review 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, relief not generally available to other workers. This is unfair. As a result of the review, the Government will change the rules to restrict travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user. This will take effect from April 2016 following a consultation on the detail of the changes. It will level the playing field between employment businesses that seek to lower their costs by using these arrangements and those that do not.

1.251 Stakeholders have also raised concerns that individuals do not understand how their take-home pay is affected by these arrangements. The Government wants employment intermediaries to provide workers with greater transparency on how they are employed, and what they are being paid. The Department of Business Innovation and Skills will consult on these proposals on transparency later this year.

And...

2.79 Employment Intermediaries: travel and subsistence (umbrella companies) – The Government will consult on detailed proposals to restrict tax relief for travel and subsistence for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end user. This follows a discussion paper published shortly after Autumn Statement 2014 on employment intermediaries and travel and subsistence relief. The changes will take effect from 6 April 2016 and will be legislated for in a future Finance Bill. The government wants employment intermediaries to provide workers with greater transparency on how they are employed and what they are being paid. The Department of Business, Innovation and Skills will consult on these proposals on transparency later this year.

IPSE - Caution

Freelancer and self-employed group, IPSE, urged the Government to carefully consider how it implements the new expenses rules.

IPSE's 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."

NoPalaver - more limited companies

NoPalaver Group, a provider of accounting services to contractors, said that these new expenses rules would push workers from umbrella companies into setting up limited companies.

Graham Jenner, Director at NoPalaver, said: "This announcement may lead to greater interest in setting up limited companies from those workers who previously used umbrella companies.

"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.

"There will be an added burden on the Government when they receive additional paperwork of workers setting up their limited company rather than an umbrella company collecting and paying over tax on behalf of large numbers of workers – hopefully this has been taken into account.

"The rules will dissuade workers from taking assignments where they have to travel long distances – therefore reducing labour market flexibility."

For further information

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