Draft 2016 travel and subsistence legislation – Briefing 1: What are the key points and likely problems?


Written on 11 December 2015

Draft legislation published on 9 December 2015 has set out changes to restrict tax relief for relevant travel and subsistence expenses (“T&S”) for agency and contract workers engaged through umbrella companies and personal service companies (“PSCs”). The new legislation will apply from 6 April 2016. 

A further consultation on the draft legislation, open until 3 February 2016, will aim to ensure that the legislation works as intended. As such, the further consultation will focus mainly on the technical wording of the new legislation rather than re-open the policy debate relating to the proposed legislation. 

Our series of four briefings will cover how the legislation will affect different types of supply model. We will focus on potential problem areas, and what actions users and suppliers of umbrella and PSC workers will need to take to minimise the short and long-term impact of the proposals. 

In this briefing we will start by summarizing the key points and some likely problem areas. 

Key points

  • As announced in November 2015’s Autumn Statement, umbrella companies and other employment intermediaries will, as a general rule, no longer be able to pay T&S tax-free for travel from home to temporary workplaces from 6 April 2016.
  • The measures will extend to PSCs only where ss48-61 ITEPA (the so-called “IR35” provisions) apply. Also, there will be no tax debt transfer risk for hirers or staffing companies regarding PSCs (except in relatively limited circumstances). On the face of it, it appears that there may be an Indian Summer for PSC arrangements. However, for reasons that will be set out in this series of briefings, it may not be a good idea for large numbers of people to sunbathe in public during that Indian Summer – there are dangers, and the Summer may not last long.
  • The definition of “employment intermediary” is wide, including any person who carries on a business of “supplying labour”. Outsourcing arrangements appear not to be caught because, if properly structured, they will not involve the business of labour supply. 

Some likely challenges

We think this draft legislation may give rise to a number of possible problems and challenges for suppliers and users of agency and contract workers.

  • Assuming that the traditional umbrella model mainly dies out, how will staffing companies who currently benefit from substantial referral fees from umbrellas safely replace that income?
  • Will there be a surge in PSC contracting with T&S claims at the centre, and will there be uncertainty about what HMRC will do to clamp down on that? What should staffing companies do to avoid being seen to have encouraged the surge?
  • When is it safe to take referral fees from accountancy service providers who help workers set up on a PSC basis?
  • Will there be aggressive practices by some intermediaries and advisers who will take the view that HMRC won’t take action and hirers won’t care (e.g. because intermediaries will count on the fact that the burden of proving “avoidance” etc lies with HMRC)? Much will hinge on HMRC’s enforcement appetite and resources.
  • There is possible uncertainty as to what is and what is not “supplying labour” – where does the definition leave outsourcing companies who provide some services on a cost-plus or time-spent charging basis, and who pay their employees T&S tax free (as many will)?
  • Will suppliers try to exploit uncertainty about what an “engagement” is? (T&S to different workplaces within the same engagement may be payable tax free).
  • Will there be claims by disgruntled workers when they realise take home pay is going down or (after the changes) is effectively less than comparable permanent workers? 

What next? 

Our next briefings will look at:

  • Exactly how umbrella models are affected and what will happen to umbrella workers.
  • Whether there will be a surge of PSC contracting and, if so, what risks may that involve.
  • The impact on outsourcing arrangements and other aspects of the legislation.

On 20 January we are running a seminar that will look at the future for flexible workforces, and why staffing and umbrella companies need to act now to ensure that their offerings keep pace with legislative change and offer commercially sensible arrangements. Find out more >


In the meantime we are offering fixed price consultations for any business affected by the changes. In these consultations we will:

  • Review your current arrangements and types of worker/types of engager.
  • Review other legal and commercial developments affecting you at the moment.
  • Discuss the best options for your business taking all factors into account, followed up with a written report. 

We will look at the detail of the proposals and their impact on the various options at which companies have been looking.

  • Usage of PSC models: what is safe going forward?
  • What umbrella arrangements may still work?
  • How can outsourcing arrangements operate outside the new regime?
  • How can direct engagement models offer a viable and profitable alternative?
  • How can you reduce risk of claims by disgruntled workers if there is no option other than to push down take home pay rates?

Our advice is confidential and protected by legal privilege. Generally speaking, only solicitors registered by the Solicitors Regulation Authority and practicing barristers benefit from legal privilege.

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*This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.