Following the Chancellor’s Budget last Wednesday, it was confirmed that the government will be “clamping down on agencies who abuse tax relief on travel and subsistence”.
The proposed changes in Autumn Statement 2015 are due to the increased number of intermediaries using overarching contracts of employment for contract workers, offering the opportunity to abuse the system and gain tax relief on expenses.
What are the changes?
The current proposal will remove workers’ entitlement to claim tax relief for travel and subsistence where:
- The worker is supplied by an intermediary (e.g. umbrella companies) to a third party.
- The worker is broadly subject to direction and control by that third party.
John Payne, Director of Churchill Knight has commented, “We fully support these changes. Many umbrella companies have abused the previous ambiguity surrounding travel and subsistence tax expenses. The proposed budget change will create an even playing field for all payment solution providers”.
How will it affect umbrella companies?
The appeal of being paid via an umbrella company will not be as attractive as it once was. The proposed changes could dramatically reduce the take home pay figure for contractors that choose to operate through them.
If these alterations reduce the amount claimable against expenses whilst working through an umbrella company, the ‘tax efficient’ benefits of running a limited company will become even more attractive to contractors.
Industry body – “Professional Passport”, have commented that they estimate around 50% of workers currently operating via umbrella providers, will move to a personal service company (PSC) as a direct result of the proposed changes.
Original claims that the legislation changes would generate £400m of tax revenues to the Exchequer could be shot down, as Professional Passport also comments, “This move will result in a loss of £600m, greater than the predicted gain”.
Additional effects to recruiters
As you are no doubt aware, new reporting requirements from HMRC, that affect your business, will be coming into play in April 2015. HMRC rules and liability clauses for changes to tax relief are likely to mirror that of reporting requirements by placing an additional burden on the recruitment agencies themselves.
Churchill Knight advises agencies to build a reliable and compliant Preferred Supplier List (PSL) for outsourced payment solutions.
How can we help?
Since 1998, Churchill Knight has been working closely with recruitment agencies. We help to ensure full compliance with any legislation brought into play by the government where it affects the recruitment industry.
Churchill Knight offers contractors a fast, easy and simple solution to running their own limited company. We are experts in helping those contractors who will be affected by the upcoming changes to travel and subsistence legislation.