HMRC

Umbrella Companies attend HMRC Meeting re Expenses

9 January 2015

Yesterday (8th January 2015) Umbrella.co.uk attended an FCSA meeting and consultation with HMRC regarding the 'Employment Intermediaries: Temporary workers - Relief for subsistence and expenses proposal. 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

There were 40 companies in the industry represented highlighting the concern felt within the industry regarding possible changes.

HMRC delivered their points as laid out previously and have given umbrella companies 4 weeks to respond which is expected to be done collectively through the FCSA. 

The inaccurate and damaging campaigns run by Labour back benchers and Trade unions were discussed and it was felt that Ministers were incorrectly influenced by these. 

The main points that HMRC want to hear feedback for are:

1. Do we agree with the description that HMRC have of OAC (Over-Arching Contracts) ?

2. Do we agree with the Description of how OAC's are used and are there any variations that have not been covered?

3. Do we agree with the description of why OAC's are used? What is the main motivation for using an OAC ? Are there any other reasons not described here? 

4. On which of these reasons would you place most weight in explaining the recent increase in the use of OAC's

5. Do you have any other comments ? For example, do stakeholders agree that it is unfair that workers engaged through OAC's with employment intermediaries get access to travel and subsistence relief whilst others in similar circumstances don't?

6. Do you have any evidence on the extent of usage of OAC's by employment businesses?

7. Do you have any further evidence of the recent trends in the use of OAC's ? 

8. Do these differ between umbrella companies and employment businesses? 

9. do you expect the prevalence of OAC's to increase in the near future. 

10. Which income groups do you expect will be the greatest users of OAC's

11. Do you have any evidence of the extent of any competitive distortion created by misuse of the tax rules through OAC's and other schemes noted in the document? 

12. Do stakeholders agree there is strong case for the government legislating to restrict tax relief for travel and subsistence. 

13. Do you have any evidence on the likely impact of option 1 in the proposal. Do you think any particular sectors will be affected more than others?

14. Do you have any evidence on the likely impact of option 2 in the proposal. Do you think any particular sectors will be affected more than others? 

15. Are there particular groups of people who will be significantly worse off if tax relief was restricted?

16. Are there examples of where this may affect cases where it is fair that tax relief should apply?

17. Do you think that the removal of relief for travel expenses under option 1 should be extended to PSC?

18. Do you have any other suggestions, including broad based T&S reform as part of the T&S review announced at Budget 2014, for how the identified unfairness could be removed. 

Below are a number of points that we at Umbrella.co.uk think are worth considering:

  1. The contract rate. This should be seen as part expenses and part fee for the job and not just a wage. i.e. HMRC assume because someone is on £30 per hour then they think that’s equivalent to a wage but in reality a contractor negotiates this amount based on the costs and time they will spend travelling to and from the assignment and will only take it if they consider it worth doing. If for example the role was advertised as £25 per hour plus expenses there would be little argument and in reality this is what they are getting.
  2. Where is the data to verify that that there has been a dramatic rise in OAC’s? All the large umbrella companies seem to be a similar size as to what they were. Is part of the rise because demand for contractors is higher because of the recovery in the economy? How can that be a bad thing? Or is it purely that a small number of umbrellas switched large numbers from CIS to Umbrella as a result of the new false self-employment rules. Perhaps this should be quantified. At Umbrella we like most other Umbrella Companies did not make a wholesale switch of the small number of CIS workers we had prior to the legislation change. With them now being paid through PAYE by their relative agencies.
  3.  The argument is still that the people who will be affected are the contractors travelling large distances to provide their services. They do not have the luxury that permanent employees have of choosing a home near to work or vica versa. They incur large costs in respect of petrol/car wear and tear, public transport, hotels and higher subsistence costs. It is only appropriate they receive relief against these costs. The benefit they get means they will still be worse off when compared to a permanent employee living near to their place of work. Many contractors have said they wouldn’t be able to continue with their current assignment or future assignments if the relief was removed. Perhaps now is the time for the contractors who will be affected to speak out?
  4. The reason for using an OAC is to give a contractor the security of permanent employment and to allow their tax to be administered with the greatest of ease allowing them the option to take varying assignments without the need to change employers. They also receive valuable support from their umbrella company.
  5. The workers who potentially shouldn’t benefit from travel and subsistence are the contractors taking one assignment at a location near their home but these are already legislated for by the need to be expecting to take multiple assignments. Also their claims are minimal as claims are proportional to distance travelled.
  6. A change in legislation shouldn’t relate to PSC’s because they are already covered by IR35.
  7. The distortion that could be removed are the higher dispensations that exist for some umbrella companies. From our experience the HMRC scale rates seem appropriate.

The main worry is that the rise in OAC’s is mainly due to there being more lower paid workers being employed as contractors. Do HMRC, UCATT and the Government really want to target the less well-off prior to a General Election?? Low earners also have the lower benefit due to lower applicable tax rates, expenses being restricted to meet National Minimum Wage criteria and possibly having the lowest claims as they cannot afford to take long distance assignments. The gain from banning their relief would be minimal to the Government but cause the most damage.

We would be interested to hear the thoughts of any contractors or freelancers especially those that believe a change in legislation would make their current roles unworkable.

Miles Grady

Director

Umbrella-Company Limited