The HMRC released a consultation document on 16 December 2014 entitled “Employment Intermediaries: Temporary Workers – relief for travel and subsistence expenses”. The document starts with several assumptions, which are: • All Umbrella Companies are tax avoidance vehicles • All Umbrella Companies are non-compliant and their payment of travel and subsistence is tax avoidance • The use of overarching contracts (OAC) is the mechanism for the avoidance as they are used to create the required Mutuality of Obligations • Umbrella workers do not have any true right to travel and subsistence • Salary Sacrifice as a means of releasing funds to pay travel and subsistence doesn’t work Even though the document holds back from suggesting that the only purposes of such contracts is tax avoidance, the key thrust of the discussion is that in most cases that is a significant reason for their use. Salary sacrifice arrangements come in for condemnation and we are made mindful that these arrangements can reduce the salary of the worker with potential impacts upon their statutory payment and contributory benefit entitlements. That shouldn’t come as a shock as HMRC had to issue detailed guidance on exactly this point shortly after suggesting that salary sacrifice arrangements in respect of childcare vouchers were a good thing which could benefit many working payments. It appears, once again, no thought has been given to compliant companies and all umbrella companies have been tarred with the same brush. Options for change The consultation emphasis is on two possible “resolutions”. The first option is to pass legislation to redefine eligibility to travel and subsistence. This would mean that individuals engaged via an intermediary have to treat the end client’s workplace as a permanent workplace. This would apply to any form of intermediary, potentially including personal service companies. The second option is to restrict the availability to tax relief where the individual is employed by an intermediary under an OAC. This would not have the potential to impact upon PSCs but would require a definition of an OAC to allow segregation of OACs which are not purely used to create eligibility to travel and subsistence expenses. It should come as no surprise that the consultation raises more questions than it answers. There appears to be a deliberate effort not to distinguish compliant umbrellas from any other non-compliant tax avoidance vehicle. An assumption that most umbrellas are intended to do no more than reduce tax and NIC permeates the discussion points. The document implies that the changes will in some way be of benefit to the workers which seems a strange stance to take when the key objective is to increase the tax and NIC deducted from their pay and expenses! Overall, this is either badly thought out or a deliberate attempt to mislead and colour the responses received. What is apparent here is that for the second year running agencies could be under significant pressure. Until the consultation is closed and we find out the results there is very little pro-active advice which can be given. We would advise all umbrella companies not to make knee-jerk reactions on business re-organisation but to look to their compliance and ensure that all employment law and tax aspects are scrutinised closely to ensure there is no question of salary sacrifice arrangements or non-compliance with NMW, Holiday Pay and expenses. Following a recent conference call with a large number of leading payroll providers, to discuss the potential changes to the way in which Umbrella providers allow the claiming of business incurred expenses, such as travel and subsistence. Andrew Johnston, Managing Director of ePayMe said: ‘It’s good to see such a subject being challenged and addressed, as a serious issue, with so many providers. The suggested changes will provide clarity between what should and should not be allowable. The changes discussed will inevitably eradicate the non-compliant providers who still provide a travel and subsistence scheme. These modifications will only help to provide a benchmark for how temporary contract workers are paid and to ensure all valid expenses are allowed and will cause a knock on effect and will help to reduce the schemes that cause unnecessary complications within this sector’ Written by Neil Baigent – Compliance Manager – ePayMe