Tax Expert Highlights Issues For Employment Intermediaries

HM Revenue & Customs has today published its response to the consultation on tax relief for home to work travel costs incurred by those employed by employment intermediaries, such as umbrella companies and personal service companies.

The planned changes announced today could have a significant impact on businesses that engage temporary workers. HMRC has already introduced legislation, from April 2016, that prohibits any tax relief on travel and subsistence costs reimbursed by an employer under a salary sacrifice arrangement, but these rules go further than that. From April 2016, the proposed rules will:

(a) Stop any tax relief where the individual is employed by an employment intermediary and the worker is under the supervision, direction or control of the end user. HMRC has promised that further guidance on the definition of “supervision, direction and control” will be published early in 2016; and

(b) Stop any tax relief where the individual is providing his services through a personal service company and the engagement is caught by the intermediaries legislation (commonly known as IR35).

Paul Spenceley, Tax Manager at Irwin Mitchell said: “One of the main issues that will impact on business is the proposed transfer of any PAYE debt that arises because of these changes, to potentially the directors of the employment intermediary or the end user.

"It only applies to the end user if they have “fraudulently misled” the employment intermediary so that travel and subsistence expenses were treated as allowable for tax relief. Once further guidance on the definition of supervision, direction and control has been published, businesses will need to review the way in which they use temporary labour and any prior statement/documents they may have given to employment intermediaries regarding these matters.

“There was also concern raised during the consultation process that this would impact on the flexible labour market and individuals’ willingness to travel if tax relief was withdrawn. HMRC have dismissed this point on the basis that it has not seen sufficient credible evidence to support that view. Businesses will have to see if this becomes an issue and if necessary look at flexible alternatives such as providing a works bus service.”