HM Treasury consultation on travel expenses

After dealing with perceived problems relating to limited companies' disguised employment and more recently managed service companies, the Government's spotlight is now focusing on umbrellas and travel expenses.

John Hill, a tax and employment specialist with John Hill and Associates and BTG-Tax, gives his opinion on the Government's consultation process which could result in legislation relating to umbrellas.

John Hill writes:

The announcement that H M Treasury have opened up another consultation process will come as no surprise to tax practitioners with experience of advising umbrella companies and personal service company providers, and the same sanctions as now apply to managed service company providers are being put forward to counter non-compliance with the travel expense rules.

Unfortunately, there is some muddled thinking behind this action which stems from a piecemeal challenge to those arrangements which HMRC appears to dislike. By the same token, some of the organisations involved in the tax and administrative process of the mobile workforce in this country have only themselves to blame for the continued spotlight under which the industry falls. We saw this with the lack of attention to the IR35 rules by some organisations and now we see the same lack of attention in some quarters (though not all!) to the application of the travel rules.

Overarching contracts

My concern over the latest consultation process is that the government's view is not clear on precisely what grounds it is unhappy with the way in which some umbrella organisations are operating (or not operating) the rules. For example, in the Treasury consultation document, much is made of the use of overarching contracts of employment by umbrella organisations to gain a tax advantage (in HMT's words), but H M Revenue and Customs continues to challenge the same companies on the basis that their employees do not have over-arching contracts of employment (which is debatable).

As with much of the tax legislation over the past 10 years, successive changes to the rules have resulted in more and more uncertainty. I remember the difficulty in attempting to understand the new travel rules when they were introduced in 1998 to replace the old triangular system that we had been used to, and the numerous examples that were churned out to show what was and was not a temporary or permanent workplace. Even now, some of the published examples state that "in these circumstances the site may be a permanent workplace" . In other words, equally, it may not. If HMRC is unsure of the position relating to its own examples, then we shall always have opinion, argument and interpretation.

When the new rules were introduced, HMRC made it clear that "site based" employees would be allowed to claim the cost of travel from their home to the sites where they carried out their duties. I act for national building contractors who often employ temporary workers (not subcontractors) who are sent to work on different sites for varying lengths of time.

If we are to have new legislation, will this be drafted to affect all employers or just umbrella organisations, and would it be fair or desirable to have a two tier expenses system depending on the nature of the employer? If the latter, I believe this would lead to even less clarity. If it is to apply to all employees then fundamental changes will need to be made to the legislation as it currently stands.

What seems clear is that had all the umbrella organisations acted in a responsible way (and I know that many have!) seeking professional advice where necessary on what might constitute a temporary workplace, it is unlikely that we would have had the threat of further legislation and sanctions.

John Hill is the proprietor of John Hill & Associates and is also Tax Director at BTG-Tax.