Employment Intermediaries: temporary workers – relief for travel and subsistence expenses. A new consultation proposing radical changes to the employee travel rules closes on 15 February 2015.
In December 2014 the government issued a consultation considering various options for curtailing the abuse of the employee temporary travel rules by employment agences through the use of overarching contracts of employment (OACs).
The consultation also proposes to extend the measures to amend the temporary travel rules for contractors who are employed by their own personal service companies (PSCs).
The consultation considers two options.
Option 1 proposes modification of the rules that define a temporary and permanent workplace (section 339 ITEPA 2003), in order to restrict the definition of a permanent workplace with the effect that:
- in cases where a third party (such as a staff agency or intermediary) engages its workers on an OAC, the end client's location will be treated as the worker's permanent workplace. This would means that workers on OACs will be unable to claim tax relief on home to workplace travel.
- in cases where the worker is an employee of his own PSC, it is proposed that he will be deemed to be under an OAC created by his own company and he will then be treated in the same way as an agency worker on an OAC. This would mean that his end client's location will be treated as a permanent workplace and so he will not be able to claim home to workplace travel.
Option 2 proposes that where an OAC is in place claims for travel and subsistence would not be allowed:
- an OACs would not recognised for tax purposes as a single employment contract.
- Under this measures there would be no modification to the travel rules for PSCs.
The proposed changes will restrict the amount of tax relief that is available for both travel, subsistence and some cases accommodation costs (for the different rules see Employee expenses).
HMRC has identified many cases where agency workers have their low levels of pay subsidised because the agency is able to treat every job as if it were at a temporary workplace and some of these practices, set up to avoid the National Minimum Wage, have already been ruled abusive by the Tribunal (see examples in Pay Day Relief models).
Our comments
The proposals to restrict tax relief on travel and subsistence may result in a significant drop in income for many contractors who undertake work via personal service companies. However, if the proposals were to go ahead, then the problem is going to be how exactly is HMRC going to be able to work out what is a personal service company and what is not?
The background here is that a PSC appears to be presumed by HMRC (and Parliament) to be a tax avoidance vehicle, i.e. used by its owner in order to avoid employment. However, many PSC owners set up their companies because they like running their own businesses: they like the risk and reward and flexibility. The PSC end client is most often the one who wants to avoid any employment issues, particulary costs of HR, Employers NICs, and pensions. Everyone in the contracting business wants flexibility. Conversely, there are examples of cases where workers are made to work via PSCs or by umbrella companies because that is what the end client wants. In those situations, it would be perhaps fairer to put the tax burden on end client not the worker...just a thought.
HMRC have recently announced that they are no longer requiring employers to answer the service company question for PAYE. It appears that a new PSC question would need to be inserted into corporation tax returns.
The consultation runs until 15 February 2015.
Click here to go back to Nichola's SME Tax update 21 January 2015
Links
The employee travel rules at a glance, see our practical tax guide to: Employee travel rules
