Travel Expenses

Umbrella.co.uk Responds to HMRC Targeting Travel and Subsistence Relief

19 December 2014

At Umbrella we wish to highlight the deep concern felt with the points raised and possible proposals outlined in the recently published HMRC document titled ‘Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses’

This followed the proposal for the discussion document in the Chancellor Autumn Statement and subsequently an amendment to the Finance Bill.

We also wish to highlight the inaccurate and damaging campaigns being run by Labour and various trade Unions in an attempt to ban Umbrella Companies.

Summary

The only contractors who have a take home pay higher than a comparable permanent employee are the ones travelling large distances to deliver their service. In doing so they are spending unpaid time travelling and incurring petrol costs/car wear and tear so in reality are worse off despite deserving not to be.

They also incur higher subsistence costs by being away from home for longer hours.

90% of the tax HMRC hope to generate is from the hard working contractors travelling the length and breadth of the UK meeting a need from businesses for their services.

Contractors working near their home either do not claim relief for expenses or their claims are insignificant.

A change in the legislation will make it impossible for contractors to take assignments that they need to travel a large distance to and businesses will suffer.

The net effect is the reduction in fuel duty collected would offset the gain from banning the expenses relief.

Detail

We hope to highlight that any reduction in the relief for Travel and Subsistence expenses as proposed in the HMRC document will affect mainly the hard working contractors and freelancers who have to travel long distances to supply their services and who therefore deserve their tax relief in respect of reimbursement for expenses they incur.

We therefore do not believe they are comparable to Permanent Employees working at the same location.

Our analysis shows that contractors working a long distance from home make up the majority of the relief given in respect of expense claims reimbursed for mileage covered, other travel and overnight stays.

This is because claims are proportional to distance travelled and therefore those that have to travel the furthest have the largest claims and hence relief.

Our analysis also shows that it is the contractors travelling these long distances who are the ones who claim the relief. Contractors travelling short distances generally aren’t claiming mileage, with 53% of all contractors claiming no mileage at all.

For example contractors travelling over 100 miles per week make up almost 90% by value of the relief given. These account for just 32% of the contractors working through our Umbrella.

Those travelling over 200 miles per make up almost 63% by value of the relief given.  These account for just 17% of the contractors working through our Umbrella.

It is not therefore appropriate that these temporary workers are treated the same as permanent employees who have the luxury of being able to plan where they live and work and generally have only a short distance to travel each day. By the very definition of being a temporary worker they are travelling to a temporary workplace and by doing so have to travel much further than normal employees.

The UK economy needs people who are prepared to work away from home to fulfil a need for short term assignments and projects.

Similarly with subsistence it is only the contractors that travel long journeys and who are traveling to and from work and attending work for lengthy periods who qualify for the higher subsistence scale rates. The claims for subsistence mirror the people who are travelling the longer distances.

Just under 40% of contractors working through our umbrella claim no subsistence relief at all.

In respect of Hotel Bills contractors only claim if they are working a considerable distance away from home. All claims are verified by receipt and that it is not their main residence.

To target contractors would affect at least 200,000 people working through umbrella companies but in reality the reduction in tax relief would seriously harm the contractors who deserve the benefit most and as shown above are not better off despite the reliefs they are given.

Abolishing expenses relief would therefore upset many but the majority of additional taxes collected would be off the minority who travel the furthest and in no way can be classed as working locally.

We have calculated that the cost to a typical contractor of abolishing their relief when they are travelling 530 miles per week and claiming £10 per day subsistence would be approximately £110 per week.

But they aren’t this much better off. The contractor is travelling over 500 miles in unpaid time and incurring around £80 in petrol costs plus wear and tear on their car. They are actually worse off than a local permanent employee.

The additional tax gained from abolishing the relief when someone is travelling a 100 miles per week and claiming £5 per day subsistence is less than £30 per week. Again this just covers the time and money spent travelling.

Removing the valuable service offered by Umbrella Companies in giving a contractor the statutory rights of an employee and the support and assistance they require would be detrimental to the contractor market. It would also affect the thousands of people employed by umbrella companies and reduce the taxes they and their businesses pay. Our satisfaction surveys and testimonials support that contractors like working through our umbrella company.

We are also unsure how HMRC have calculated an estimated additional tax of £400m as the expenses paid by Umbrella Companies aren’t publicised and it is possible they’ve assumed all umbrella companies are claiming expenses which they are not.

Our background

We currently employ 65 employees at our Head Office in Wilmslow and employ over 2,200 flexible workers through our umbrella company that could fall within the proposals.

We are therefore one of the largest employers in Cheshire.

We also provide accountancy services to approximately 1,000 owner managed limited companies that could be caught by some of the more stringent proposals.

We and other umbrella companies have worked hard to build up our businesses and believe we help provide a useful environment for flexible workers to operate through while enabling the Treasury to collect considerable amounts of tax on a timely and efficient basis.

Below we highlight a number of concerns regarding the Labour/Trade Unions campaign and the HMRC discussion document and the proposals outlined:

1.UCATT AND TRADE UNIONS

We and other umbrella companies feel that the pressure for change exerted by a number of Trade Unions and in particular UCATT was unwarranted and inaccurate.

UCATT blamed umbrella companies for construction workers no longer being eligible to be paid through the Construction Industry Scheme (CIS) following the new false self-employment legislation. This was not the fault of Umbrella Companies and indeed the majority of umbrella companies were not involved in wholesale switching from CIS to Umbrella.

UCATT claimed that their members were worse off by working through umbrella companies but this is simply not true. They completely ignore the fact that recruitment agencies pay a higher rate of pay to umbrella companies to reflect that the Umbrella Company absorbs this cost rather than them.

At the same time people argue that contractors who are working through umbrella companies are undeservedly better off. How can they be worse off and better off at the same time?

This inaccurate negative publicity has been detrimental to the image of umbrella companies.

2.Temporary Workers are Different to Permanent Employees

The proposals assume that temporary workers are no different to permanent employees working at the same location and therefore do not deserve ‘special’ treatment.

This assumption that they are similar to permanent employees doesn’t recognise that contractors don’t always have the luxury of working from a location they have chosen to be near their home or to even consider moving to near to their place of work as it is only short term.

The contractors who travel the length and breadth of the UK to meet a short term need for their services are the ones any such change in legislation would affect most as by travelling the furthest distances their expense claims are the largest.

By the very nature of taking a short term assignment the place they are working is indeed temporary. Being described as a ‘Temporary Worker’ highlights that their position and place of work is temporary.

Rules already exist to disallow travel and subsistence claims where it is known that they will not be taking future assignments though the umbrella company and the temporary location reverts to being a permanent one. It is therefore only contractors who are expected to work at multiple locations (and hence temporary) that qualify for relief.

We do not feel a person who for example has to travel from Manchester to Birmingham daily or who has to travel on a Monday morning, stay in a hotel all week and then travel back on a Friday evening can in anyway be classed as being the same as a permanent employee also working at the same site.

To highlight that this is the case at our Umbrella Company we have analysed our mileage claims and found the following:

  • 53% claim no mileage at all.
  • Of the people who claim mileage, 68.1% travel over 20 miles per day and account for 89.2% of all mileage claimed. These account for just 32% of the total contractors working through our umbrella.
  • Of the people who claim mileage, 36.5% travel over 40 miles per day and account for 62.8% of all mileage claimed. These account for just 17% of the total contractors working through our Umbrella. These workers on average travel in excess of 530 miles per week by car.

What this confirms is:

  • The current system is not abused as highlighted by the high proportion who don’t claim mileage at all
  • The contractors claiming the benefit are the ones travelling considerable distances to supply their services.
  • The large proportion of claims in terms of value and therefore tax saving are actually from a low number of contractors who have to cover considerable distances
  • Any change in legislation will harm those covering the most miles. An alternative option is that they could stay overnight in hotels/Bed& Breakfast but they would be forced to be away from their friends and families and potentially this cost too would be excluded in any new legislatio

We therefore conclude that this shows that contractors who are claiming expenses aren’t the same as permanent employees also working at the same location.

On discussing with other umbrella companies we believe this to be true across the industry.

At Umbrella we verify journey distances, claim amounts and require receipts to prove that sufficient petrol has been purchased as evidence that the journey was made in their own car.

All other expenses require a receipt and must be incurred wholly, exclusively and necessarily in the performance of their duties. Only subsistence up to the HMRC scale rates are allowed with no receipt. These are however sample tested back to receipt on a weekly basis.

3.Contractors deserve Recognition

Contractors do deserve recognition that are supplying a service and are prepared to take risks associated with taking short term assignments. They do not have the long term earnings and job security that permanent employees benefit from but are fulfilling a need for short term labour to meet special projects and hence to boost the economy.

The reality is their additional take home covers the time and cost of travelling to their assignments.

4.Concerns over HMRC Additional Tax Calculation

The Industry Body FCSA has requested details of HMRC’s calculation as it is difficult to see how this has been performed. There is not reporting to HMRC of expenses that contractors have been paid and hence relief given.

Have they taken into account the loss in fuel duty by contractors no longer able to afford travelling large distances to deliver their service?

5.Agency Workers Regulations

The current tax reliefs help ensure Agency Workers earn at least a comparable net pay to those in permanent employment. A reduction in these benefits could see many earning less and falling foul of the Agency Workers Regulations especially when accounting for the costs they have to incur travelling and being away from home.

We therefore believe a change in the treatment of travel and subsistence would hit the hardworking contractors who have to travel the long distances to their client the most. Legislation needs to recognise the entrepreneurial spirit that contractors and freelancers bring to the economy.

 If they are hit in the pocket their alternative might to be to only take local assignments or fulltime positions.

Proposals for the way forward

  • An even playing field

All umbrella companies should result in a similar net pay. There should be no special schemes or dispensations. We believe the HMRC standard rates should be used by all.

  • Focus on Compliance by Our Industry

All mileage requires petrol receipts.

Greater sample testing of subsistence expenses back to receipt to ensure an applicable cost was incurred.

All other valid expenses require a copy receipt/invoice.

  • Additional Protection by being an Umbrella Company Employee

Contractors working through an umbrella company already benefit from statutory rights such as maternity and sick pay and access to a company pension.

Focus on help and support for periods between assignments to ensure the flexible worker is best placed to find new assignments. These include payment for time and costs in attending interviews or researching and applying for roles, professional assistance in finding new assignments especially liaising with the contractors current agency, free CV writing services, free interview technique advice and potentially the use of umbrella company offices and resources.

IF YOU AGREE WITH OUR POINTS RAISED THEN IT IS IMPORTANT TO SPREAD THIS MESSAGE.

WE WOULD BE HAPPY TO HEAR FROM ANYONE SHARING OUR VIEWS.

PLEASE EMAIL: miles.grady@umbrella.co.uk