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HMRC feels that these arrangements ‘mean that some people are able to benefit from tax relief on home to work travel expenses that is not generally available to others.’
They estimate that the income tax and NICs avoided through the use of OACs operated by umbrella companies is in the region of £400m a year.
HMRC is suggesting that protection of the low paid is one of the justifications for taking action in this area because based on their analysis, for around a quarter of umbrella employees, the fee due to the umbrella company is greater than the travel and subsistence relief in relation to their employment.
Consultation
The Government has now published a consultation document and a number of questions to be considered. It proposes two potential options as the way forward, one of which has potential to impact on freelancers.
Samantha Hurley, Head of External affairs and Compliance at agency group ASPco said: "The first option being looked at is that where the individual is supplied through a third party the workplace of the end client would in all cases be a 'permanent workplace'.
"In this case no relief for travel from home to workplace, and associated subsistence, would be available. This would apply whatever the form of the third party – in other words, this would affect personal service companies as well.
“Option 2 would be to restrict the availability of tax relief for travel from home to workplace, and associated subsistence costs, where the individual was employed by an intermediary specifically under an OAC. This could be accomplished by stopping OACs being treated for tax purposes as giving rise to a series of temporary 'employments' under a permanent contract.
“While APSCo welcomes any initiative to close the loopholes that allow abuse of the rules, the first option would, yet again, result in professional contractors, professional recruiters and the professional flexible recruitment sector as a whole suffering collateral damage at the hands of broad brush legislation which is really meant to protect lower paid workers."
Concern
Umbrella employment providers giant group also signalled their concern that this way forward could have a negative impact on the flexible workforce and urged the Government to consider the consequences of any proposed action.
Matthew Brown, Managing Director of giant said: “While this consultation was expected, it presents a number of concerns for us and the contractors that are employees of giant. The proposals suggest that the Government will either take away the ability to claim travel and subsistence for umbrella employees and those working under PSCs or remove the ability to claim travel and subsistence for umbrella employees only.
“This will understandably cause a level of apprehension for contractors and we would not want to see any professionals negatively impacted simply because they have chosen a flexible employment route. I would also urge the Government to consider the potential consequences of such a move.
"In particular, removing the ability to claim tax relief for just umbrella employees could result in a rush for workers to operate under a PSC for the wrong reasons.
“And while giant will certainly be lobbying the government through its involvement with the Freelancer and Contractor Services Association (FCSA), the short timeframe is a concern. We will ensure that, through our network, our argument is put forward on behalf of the contractors we represent.”
The closing date for comments is February 10, 2015. The full discussion document is available here: Employment Intermediaries:
Temporary workers – relief for travel and subsistence expenses - Discussion document, Dec 2014.
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Susie Hughes © Shout99 2014
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