What are the changes?
From 6 April 2016 temporary workers working under (or subject to the right of) supervision, direction or control (SDC) are no longer able to claim travel and subsistence expenses relief.
If you are engaged by an agency through an ‘umbrella company’ or another intermediary (PSC) to provide services to a client, you may be claiming these expenses or they may be claimed on your behalf, you should check your payslip.
The general principle is that employees cannot claim tax relief on the ordinary commuting cost of travelling between work and home. However employees can claim tax relief when travelling to temporary workplaces.
The new legislation is a deliberate attempt by the Government to close what is considered a loophole – temporary workers claiming tax relief on commuting costs of travelling between work and home.
It is just as much a government/legislative matter as a change in VAT rates, income tax rates and personal allowances etc. It’s nothing to do with the employment business being used.
What is supervision, direction or control (SDC)?
This is not defined in the legislation but is set out in guidance produced by HMRC. We have used their text below:
Supervision is someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge.
Direction is someone making a person do his/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Someone providing direction will often coordinate the how the work is done, as it is being undertaken.
- Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another.
It is important to stress that it will be assumed that you work under SDC unless the client or your umbrella company can prove otherwise.
However they cannot say that you do not work under SDC if that is untrue! If they provide a false statement in writing they could become liable for any tax and national insurance contributions (NICs) which would have been due had expenses relief not been claimed.
How do these changes apply to Personal Service Companies (PSCs)?
If you currently work through your own PSC (limited company) you do not need to consider whether you work under (or are subject to the right of) SDC. Instead you will have to apply the IR35 rules for each engagement that you have.
If you work “inside IR35” the PSC should pay you subject to full PAYE tax and NICs and you will not be able to claim T&S expenses relief.
- If you work “outside IR35” you will be able to claim T&S expenses relief. So it is essential that you understand the IR35 rules and understand how you are engaged.
If your PSC does not pay the outstanding tax and NICs, HMRC can pursue you personally in your capacity as a director. They can easily track all the above as your agency has an obligation to submit a report to HMRC on a quarterly basis that shows which intermediaries, including your PSC, have paid that quarter. Make sure you understand all the legal implications and costs of working through a PSC and seek independent legal advice as to your position.
What are your options?
You can continue in your assignment at the current rate and make slightly less through the umbrella company.
You can shop around other umbrella companies to see if you can get a service that’s cheaper or one that offers benefits you consider better value for the admin fee.
You can move to PAYE through your employment agency – they will pay the original PAYE rate that was offered but this may be lower than your umbrella rate because the Employer’s NI liability sits with the employment business if you are PAYE.
You might consider setting up a PSC but take into consideration it will only be beneficial if you can pass IR35 tests which are also focused on SDC. Make sure you seek independent legal and tax advice.
Michael Page Finance and Michael Page Consultancy, Strategy & Change
T: +44 113 2437700