George Osborne Eyes Contractors
In a speech designed to show how well the economy was recovering and how it was prosperity all around it may have been hard to notice that George Osborne had one eye on the huge number of contractors and freelancers that support the economy and its recovery.
What he said
"We will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax relief on travel and subsistence while we will protect those genuinely self-employed". - See more at: http://www.umbrella.co.uk/industry-news/2015/03/summary-budget-speech-2015#sthash.PRvLdp94.dpuf
What the budget documents said:
Umbrella companies and employment intermediaries
1.250 Autumn Statement 2014 announced that the government would review the growing use of overarching contracts of employment that allow some temporary workers and their employers to benefit from tax relief for home-to-work travel expenses, relief not generally available to other workers. This is unfair. As a result of the review, the government will change the rules to restrict travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user. This will take effect from April 2016 following a consultation on the detail of the changes. It will level the playing field between employment businesses that seek to lower their costs by using these arrangements and those that do not.
1.251 Stakeholders have also raised concerns that individuals do not understand how their take-home pay is affected by these arrangements. The government wants employment intermediaries to provide workers with greater transparency on how they are employed, and what they are being paid. The Department of Business Innovation and Skills will consult on these proposals on transparency later this year.
The Good News
- The statement talks about restricting and not abolishing genuine expense claims. It also talks about targeting those that abuse the current rules. We and other compliant umbrella companies would therefore argue that this statement doesn’t apply to us.
- The legislation can be of benefit to the industry and contractors if it stops bad practice i.e. hybrid models designed to avoid legislation. Also if it means people who should really be classed as employees of an end client are indeed employed as such. Umbrella Companies were not set-up to help employers bypass their responsibilities but as a means for genuine contractors taking temporary assignments to do so while having the security and support of being employed.
- Contractors & freelancers working through their own limited companies and who are outside the scope of IR35 should be outside the scope of any changes provided this means they satisfy the condition that they are outside the supervision, direction and control of the end user where they are working.
- Umbrella Company workers who also satisfy this condition will be outside the scope of any changes.
- Importantly the budget includes the word “and” rather than “or” when talking about supervision, direction and control. This implies that all 3 conditions would have to be met for expenses not to be allowed.
- A summer consultation is taking place before any changes are finalised. At Umbrella.co.uk we are part of a syndicate and set-up to lobby the rights of contractors working through us.
- Any changes would not be until 6th April 2016.
To target contractors based on supervision, direction and control is wrong and makes no sense.
If a permanent employee is sent to a temporary place of work away from their normal place of work then they benefit from tax relief on being reimbursed for the additional travel and subsistence costs they incur.
Contractors working through our umbrella company who claim the majority of the benefit are travelling in excess of 200 miles per week. Because claims are proportional to distance travelled it is therefore the ones who are doing all the travelling who rightly receive the benefit. These contractors cannot be compared to permanent employees working at their main place of work who have the choice of living and working near home. They should be compared to permanent employees who are sent to work on temporary assignments away from their normal place of work.
This is the message we want to get across to George Osborne.
At umbrella.co.uk we have a large number of directors, employees and umbrella company workers that reside in his constituency of Tatton and are already engaged in correspondence.
Umbrella Companies help the Treasury collect huge amounts of taxes on a timely basis.
The IR35 for Expenses?
Contractors will be used to seeing change and at Umbrella.co.uk we will always work in the spirit of legislation to help ensure contractors working through us do so compliantly. We always keep our finger on the pulse and will ensure any changes needed to be made to our relationship with the people working through us will be made to protect the relief that people travelling to temporary assignments deserve.
Rules already exist to ensure that contractors are treated the same as permanent employees and that relief is only possible for temporary assignments. Expenses are not allowed where current assignment is expected to exceed 24 months or is expected to be the final assignment i.e. not multi-assignment
Contractors and freelancers can be rest assured we will be taking part in the consultation to protect your interests. If you would like to voice your support please contact us at firstname.lastname@example.org.
Like we have said any changes are subject to consultation and would not happen until April 2016 at the earliest.
Many indeed see the proposed changes as positive. Contractor Calculator has the following quotes:
The Freelancer and Contractor Services Association's (FCSA) chief executive Julia Kermode is relieved, explaining that: “We were worried that the rules would simply be changed and we are very pleased that HMRC and HM Treasury have listened to our lobbying, and appreciate the value of our sector.”
Kermode notes that in his speech, the Chancellor specifically said that the measures would be designed to protect the genuinely self-employed and tackle intermediaries that exploit the system for their own benefits.
“FCSA members and their contractor clients don’t abuse the current system, so I am not convinced that they need worry about these measures. I have already spoken informally to HMRC, and a spokesperson said that they are looking to end tax relief for workers supplied by intermediaries who are effectively working as an employee. This does not include genuine contractors and freelancers.
“The use of supervision, direction and control neatly ties in with the False Self-Employment legislation. According to HMRC, we are unlikely to see any movement on this initiative until after the election.
Managing director of professional umbrella employer Parasol and contractor accountant ClearSky Derek Kelly is also cautiously optimistic: “We haven’t learnt a great deal from today’s announcement, but we take encouragement from it nevertheless. The devil will be in the detail but I believe this could be very positive in the long run.
“As skilled professionals who maintain a high degree of autonomy during an assignment, the vast majority of contractors we support do not operate under supervision, direction and control of the end user. As such, they would not be affected by the new rules.”
“The document talks about restricting rather abolishing tax relief. Detail is needed but is sorely lacking here. The government’s stated aim of levelling the playing field for providers is laudable, and indeed this is something we have spent years campaigning for.”
“IPSE is concerned that if not handled carefully by the Government this could be very damaging for the UK’s smallest businesses. We will be working closely with Government to ensure this is not the case and we have already spoken to a senior HMRC official on this matter,” adds McVicker.