Umbrella company changes impacting on workers engaged via an employment intermediary

17 February 2016

17 February 2016 by Alastair Kendrick Tax

In April 2016 we will see a significant change to the amounts that can be paid free of tax to workers engaged via intermediaries (e.g.. umbrella companies or employment agencies) by way of travel and subsistence expenditure. The Government predict that this change will impact 430,000 individuals so it is significant.

Many workers engaged via an intermediary have historically claimed their commuting costs and their subsistence on the assumption that their work base was temporary. From April 2016 they can only claim costs that could be recovered if they were employed directly by the end client. Therefore the cost of getting to and from work and for subsistence while at work will no longer be tax deductible.

The new rules do give a 'get out' if that worker is not providing a personal service to the end client or no one has any right of supervision, direction or control over the worker.  It should be noted that to see whether the "get out" applies, the supervision, direction or control to consider is not just that applied by the engager but also that applied by the end client. We are seeing suggestions that some are thinking they can escape the changes to the rules by contractual amendments or because their workers aren't sufficiently supervised, directed or controlled.  However, it is likely that HMRC will be on the look out for those who believe they can be excused, by undertaking reviews.  It should be remembered that HMRC will consider not simply what is in any written contract but also what happens in practice.  If you feel that your agency workers are not under  'supervision, direction or control 'it would be sensible to get professional advice.

To date many umbrella companies have used the opportunity their workers had of claiming tax deductions for travel and subsistence expenditure to adjust what they pay their workers to leave that worker in a neutral position to what they would have been in if they had been directly employed by the client.

With the ending of the tax advantage it is sensible that those who are involved in working with umbrella companies (not just the workers but also the end client) now consider what they intend to do post April 2016 and whether it may be sensible to be considering direct employment from the end client.