The Budget included an announcement of a consultation with a view to changes being introduced in April 2016. In this article we review what the effects might be.
Who may this affect?
Currently, certain workers engaged via an intermediary (e.g. an employment business – commonly referred to as an employment agency – or a so called umbrella organisation) may benefit from tax relief on subsistence and travel payments. This arrangement can be favourable to workers in terms of maximising take home pay. The approach is used quite commonly in the engineering, construction and infrastructure sectors. HMRC has for some time, perhaps, regarded such payments with suspicion but past reviews have led to the status quo being preserved.
In more detail?
A consultation is to look at removing the tax relief. The impact would be that the arrangement would be less attractive both for individuals and the intermediaries, and for the end user/hirer require a review of their staffing arrangements/supply chain. The restriction would apply only in circumstances where the individual was under the "supervision, direction and control" of the end user/hirer client. In other words, where an individual is sufficiently autonomous to be self-employed, or the intermediary or another third party in the supply chain provides the supervision etc., the restriction on tax relief would be less likely to apply.
What happens next?
A detailed consultation will take place. Clearly, this would look at how the new restrictions would work in practice. The devil is always in the detail.
What should I do?
This clearly depends on whether you are an intermediary in the supply chain, an end user/hirer or an individual. In each case, you should follow the consultation's progress (and Clyde & Co will continue to keep you informed). It does seem likely, however, that from April 2016, the relief will cease to apply for workers who are effectively controlled by and embedded in the end user/hirer. Hirers should review their supply chain arrangements and work with their suppliers to identify practical solutions. No doubt staffing organisations in the supply chain will be working hard to identify pragmatic outcomes.
Workers will wish to be in the same net position, hirers will not wish to increase costs whilst intermediaries will not wish to reduce margins. The staffing sector is resourceful, when faced with change, but accommodating each of these wishes will be challenging.