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Umbrella company travel expenses - HMRC consultation begins

Published on Jul 23, 2008 |

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This article was written by Phil Richards, head of Micro Business at Blevins Franks Chartered Accountants.

HM Treasury published its paper "Tax Relief for Travel Expenses:temporary workers and overarching employment contracts" yesterday to start their consultation process looking at travel expenses paid to temporary workers that was originally announced in the 2008 budget.

For anyone in an Umbrella Company, this document really is worth a read.

The Treasury's view of the problem, contained in sections 6.7 and 6.8 of the 45 page document published yesterday can be summed up as follows:-

"Fairness in the tax system"
6.7 Currently, those workers operating through an umbrella company or employment agency using overarching employment contracts are able to receive tax relief for travel expenses between home and work that is not available to other workers working in similar circumstances. This raises issues of fairness within the temporary labour market. For example, a worker at a factory, who has been placed there by an agency using an overarching employment contract, or who is working through an umbrella company, can receive tax relief for travel expenses. His colleague, working in the same role alongside him, who has been placed at the factory by an employment agency not using these contracts, and is not working through an umbrella company (like the vast majority of temporary workers), cannot receive tax relief for similar travel expenses. Nor would a temporary employee directly employed by the factory be entitled to tax relief.

6.8 It was not the original intention that relief should be given for such home to work journeys and the Government is concerned to maintain the principle of fairness in the tax system. It is unfair that some get tax relief when others working in similar circumstances do not."

Their suggestions, on which they are now consulting are:-

1. To do nothing

2. To legislate to prevent workers at agencies and umbrella companies from claiming expenses whilst on temporary assignments.

Its not my intention here to discuss the merits or otherwise of this legislation, or to go into details about how the legislation may be enacted, its a bit early to do that. Once the consultation is finished in October, we will be expecting to see the HM Treasury's proposals in December, and we can look at it in detail then.

I think its clear from previous consultations that HM Treasury will prefer the legislative approach, which will mean that from April 2009 there is a strong likelihood that workers in Umbrella Companies will not be able to claim expenses for their assignments.

To me after April 2009, if workers cannot claim expenses through Umbrella Companies, there are a few questions to be answered:-

1. What business model will an Umbrella Company adopt ?

2. Will an Umbrella Companies exist at all ?

3. Will Staffing Companies now offer PAYE for their workers ?

4. Will workers prefer to return to a Limited Company, albeit inside IR35 which could still be advantageous when compared to PAYE ?

Finally there are some important considerations for anyone working through an Umbrella Company currently:-

1. If this proposed legislation could cause any massive scale change to an Umbrella Company business model ( or even destroy it ? ) workers may want to move away earlier rather than later, to ensure that their hard earned income is never in danger.

2. Be very careful when negotiating any assignments that extend past March 31st 2009, you may not want to be in an Umbrella Company in April 2009.

Its always difficult to plan ahead when legislation is "looming" and not enacted, but all workers in Umbrella Companies need to be aware of what is happening in their market and start to think about what they need to do.

You can read further reaction to the consultation here