Autumn Statement and Umbrella Companies

4 December 2014

Umbrella’s response to the Chancellor’s Autumn Statement

The 2014 Chancellor’s Autumn Statement has caused quite a stir amongst umbrella companies following the inclusion of the following paragraphs within the Autumn Statement’s main documents:

1.251 As part of its reform of the rules for employee benefits and expenses in response to recommendations by the Office of Tax Simplification, the government will stop tax relief from being claimed on reimbursed business expenses when they are paid in conjunction with a salary sacrifice scheme. The government is also concerned at the growing use of overarching contracts of employment by employment intermediaries such as ‘umbrella companies’, which allow some temporary workers to benefit from tax relief for home to-work travel expenses that is not generally available to other workers. The government will review these arrangements and publish a discussion document inviting representations from interested parties to inform potential future action.

2.147 Overarching contracts of employment and temporary workers – The government will review the increasing use of overarching contracts of employment by employment intermediaries such as ‘umbrella companies’. These arrangements enable workers to obtain tax relief for home to work travel that would not ordinarily be available. The government will publish a discussion paper shortly to inform possible action at Budget 2015.

All Compliant Umbrella Companies are in full agreement that expenses shouldn’t be paid in place of an Umbrella Company workers National Minimum Wage (NMW). Some umbrella companies in the past have paid salaries below the NMW in order to pay more expenses. These pay day by pay day tax relief models have already been addressed and are not something the majority of umbrella companies have ever operated.

Most umbrella companies pay expenses and then calculate a commission or bonus payment based on the funds that the flexible employee has brought in less costs incurred. Compliant Umbrellas don’t therefore operate a salary sacrifice scheme. There is therefore no tax avoidance to be addressed.

In respect of potentially stopping expenses being paid to flexible employees who travel to a temporary workplace (i.e. the client where their services are being performed) then we and other umbrella companies clearly do not think that this is appropriate and will unfairly affect contractors who work hard travelling the UK to meet the demand from businesses for people to deliver short term assignments. Numerous contractors travel many 100’s of mile per week and have often to stay all week in hotels to take a contract. Are the Government saying these costs should not gain tax relief? To do so would surely not gain them support from contractors?

Contracting is far riskier than being in permanent employment and meets the need for people who are prepared to contract. Permanent Employees receive travel, mileage and subsistence tax free when they are asked to visit clients. Why not contractors?

Contractors have the entrepreneurial spirit required to help the UK grow. This needs recognition and our appreciation.

The inclusion of umbrella companies in the Autumn Statement would appear to be as a result of a campaign by the construction union UCATT who in their attack on umbrella companies clearly have a misconception about the fact that umbrella companies are good for their members. What was bad for their members was the legislation regarding false self-employment which meant that huge numbers of construction workers could no longer be paid through the Construction Industry Scheme (CIS). They had a choice of being paid PAYE by the recruitment agency that placed them or through a PAYE Umbrella Company. Compliant umbrellas run through the options with each contractor and are free to choose which option is best for them. Umbrella Companies did not stop UCATT members being paid through CIS!

Compliant Umbrella Companies help UCATT members.

Where the current system regarding expenses appears unfair is that some umbrella companies have dispensations that allow them to pay more expenses tax free than the scale dispensations that HMRC guidelines allow. This means by opting for an umbrella with a high dispensation people can in effect take home more despite incurring the same costs. However it is worth noting that these dispensations have been awarded following an application to HMRC and are therefore legitimate and are a system introduced to reduce time and costs of businesses. At Umbrella we have a dispensation in relation to HMRC’s subsistence scale rates (food and drink).

The good news however is that the Government are issuing a discussion document where views like ours will be expressed and those of the contractors who would potentially suffer. Umbrella will be actively involved in this process and will be helping protect the rights of contractors.

Umbrella-Company Limited and Umbrella Accountants LLP 0800 121 6513

The full Autumn Statement is available: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/382327/44695_Accessible.pdf