finance bill

Umbrella Companies added to the Finance Bill

15 December 2014

There have been a number of scare mongering stories that the days of Umbrella Companies are numbered following the inclusion on 10th December 2014 of the following statement in the Finance Bill:

Overarching contracts of employment and temporary workers. As announced at Autumn Statement, 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.

We at Umbrella believe that the announcement of the death of umbrellas is grossly premature.

In reality the amendment to the Finance Bill is just that there will be a discussion about how umbrella companies work and this was raised in the Chancellor’s Autumn Statement. We hope the Chancellor therefore listens to the real story rather than the scaremongering and inaccurate campaign ran by UCATT.

Umbrella Companies were not the reason Construction Workers couldn’t be paid through CIS. It was a change in regulation targeting false self-employment. By targeting umbrella companies your members will be worse off!

It expected that further information will be given by the Chancellor in the 2015 March Budget. It would be unlikely that any immediate change would happen as any change would likely to be detrimental to the 100’s of thousands of contractors (and voters) working via an umbrella company.

In the Chancellor’s Autumn Statement he questioned whether it was right for contractors to receive tax relief on travel and subsistence when permanent employees working at the same location don’t receive this benefit.

This is because it’s their permanent place of employment.  Chosen because it’s near where they live. Contractors don’t have this luxury or the security of the regular guaranteed income permanent employees have. This needs to be recognised alongside the valuable service contractors fulfil.

We at Umbrella are working with other umbrella companies and industry bodies to put forward the case for contractors working through UK umbrella companies.

The gain to the Government in targeting umbrella company contractors is expected to be negligible in real terms.

The effect on hardworking contractors however would be very real. Contractors who travel the length and breadth of the UK meeting the need for people to deliver valuable short term projects would be the ones most hit. By the very nature contractors who travel long distances to temporary workplaces are the ones who have the largest tax relief. It can’t be claimed that they are the same as the permanent employees at the same site because their average travelling distance will be much less.

At Umbrella we have many flexible workers who exceed 10,000 miles per annum to deliver their services. These are not people travelling to their local place of work. After this distance the relief gained is negligible due to the lower allowance rate.

Umbrella Companies help the Chancellor collect millions in taxes on a prompt and timely basis each month.

Some people think that a likely outcome is that expenses dispensations would disappear probably in 2016/2017 tax year. This would probably be an overreaction as they were brought in to remove the unnecessary burden of a pointless paper trail. The problem with dispensations is that some umbrella companies have extremely large ones.

Additional compliance checks by Umbrella Companies could help address any suspected abuse of the dispensations. A scale rate expenses claim for subsistence should only be made where a meal cost has been incurred and a contractor should keep all receipts so this can be verified and sample tested.

At Umbrella we received a new HMRC dispensation in May 2012 which allows us to utilise the basic HMRCE scale rates in respect of subsistence. As part of our dispensation application we were required to provide in full detail all of our paperwork, website narrative and procedures in respect of processing expense claims.

 In addition we:

  • We test a sample of subsistence claims each week and require a copy receipt from the contractors selected;
  • We require petrol receipts to verify all mileage claimed; and
  • We require receipts/invoices for other expenses claimed i.e. Hotels, car parking etc.

If you are an Umbrella Company and would like to get involved in the discussion then our CEO Stewart Davis would love to hear from you and is contactable via 0800 121 6513.