April 6th is fast approaching and there are a number changes coming into play that will have a vast impact on our temporary work force. Whilst nothing is set in stone until the budget is published on March 16th, here is an outline of what to expect…
The government have introduced new legislation which will affect Travel and Subsistence (T&S) expenses for contractors. In their eyes, it is deemed unfair that contractors can claim their T&S as tax relief, whereas permanent staff can’t – as such, they are putting restrictions in place.
Under Section 339A, if a temporary worker “personally provides services to another person (client)” and these services are under a contract between the client and an employment intermediary, the worker will be unable to claim T&S expenses. Therefore, if a worker operates through an intermediary, such as an umbrella company, under the new Supervision, Direction or Control rules (SDC), expenses are no longer claimable as tax relief.
In this new legislation, each engagement that a contractor undertakes will be seen as separate employment and no longer classified as a ‘temporary workplace’. As many assignments now undertaken through an umbrella company will be classified as a “permanent workplace”, the contractor can’t claim T&S for ordinary commuting unless it can be proven that the worker is not under SDC.
If the worker is able to provide evidence that their role falls outside SDC, then although umbrella companies will not be able to reimburse expenses as tax relief, the contractor will be able to claim a refund by submitting a self-assessment tax return.
HMRC are yet to provide further guidance on how to implement testing for SDC. It is understood that workers can be subject to SDC when working for anyone, and this right does not necessarily need to be exercised in practice to apply. Although the contract terms may imply a lack of SDC, the contractors working arrangements will also be assessed.
Contractors who operate through their own limited company will also be affected by the new legislation, if their contract is inside IR35. Therefore, it is imperative that you have your contract reviewed to determine your IR35 status, as if you are inside IR35, the same restrictions for T&S will apply.
It is also important to be aware of ‘debt transfer’, as this can affect anyone in the contractual chain if found with fraudulent evidence for supervision, direction and control. The liability for PAYE and NICs are transferable to the director, client or agency that has provided the false documents.
Therefore from 6th April 2016 umbrella contractors will unfortunately see an impact to their take home pay if they are currently claiming expenses and fall under SDC. However the Cloud9 team believe that umbrella companies will still play an integral role in supporting contractors and agencies in the next financial tax year and are working closely with our partners, Professional Passport and PRISM to continue providing compliant solutions from April.