The Government has announced that it is going to press ahead with measures to attack the way that employment intermediaries take advantage of the travel and subsistence expenses regime. It 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, but who operate under the supervision, direction and control of the end-user.
No legislation has been released but a detailed consultation on the form of the legislation will take place later this year, with legislation being enacted with effect from April 2016.
The devil will be in the detail of the legislation. It will be interesting to see how HMRC propose to draft the rules to capture only employment intermediaries and to ensure that there is no scope for alternative models to evolve, and we obviously have thoughts about that. We would expect HMRC to formulate any new drafting around that already in Part 2 Chapter 7 ITEPA.
A change in the rules in this way will have a significant impact on the business models of staffing companies and the ‘umbrella companies’ which have helped facilitate significant tax savings in the staffing supply chain. The proposed legislation is likely to have far reaching effects on users and suppliers of contract workers. The inclusion of personal service companies in these measures was hinted at by HMRC in December and is particularly interesting. Effectively the measures seem likely to reduce the tax effectiveness of a personal service company contracting in many situations.
Please contact Tracey Wright or Kevin Barrow if you would like to discuss what this might mean for your business.