Contractor firms at odds about the Budget blocking expenses

Predictions that Budget 2015 would restrict but not remove tax relief for contractors on their travel and subsistence expenses – albeit not immediately –  yesterday rang true.

In fact, the Budget says rules will change so travel and subsistence relief for PSC and umbrella users will be unavailable, if they are under supervision, direction or control.

Due to apply from next April, the restriction will net £635m over four years. But contractor firms are divided as to the impact; some don’t even think ‘restriction’ is the right word. 

“The Budget itself promised to ‘restrict’ travel and subsistence relief yet… HMRC [has] confirmed relief would be ‘removed’ for anyone under supervision, direction and control

“So basically every worker that [the] umbrella was designed to service [will be affected]” claimed Howard Hughes, the chief executive of payroll firm Ship Shape Pay.

But an umbrella trade group implies that a removal isn’t what the Treasury unveiled. The Freelancer and Contractor Services Association (FCSA) reflected last night:

“Removing the right to claim legitimate travel and subsistence expenses for all contractors… would have a negative impact on the flexible workforce and the UK economy as a whole. 

“[So we’re] pleased that the government is receptive to continuing consultation ... and has not simply bulldozed ahead and legislated”.

Umbrella firm Parasol is pleased too, but for a different reason. It feels encouraged by the government’s aim (at Budget 1.250) of “levelling the playing field” for payroll providers.

The brolly must also be pleased that contractors on its books, or those with a PSC using its sister firm ClearSky Contractor Accounting, won’t generally be hit from April 2016.

“The vast majority of contractors we support do not operate under supervision, direction or control of the end-user” the duo said. “As such, they would not be affected by the new rules.”

Accountants Brookson, another founding firm of FCSA, shares this ‘business as usual’ outlook. Speaking last night, the firm’s managing director Martin Hesketh explained why:

“For the majority of our customers who work through their own limited company, we are not expecting the consultation or subsequent legislation to have any negative impacts.”

But the accountant has concerns. First, it is “unfair” to hit a worker undertaking a series of assignments at different worksites for one employer by removing once legally accepted relief.

Second, it is a bad move for the macro-economy to cause both a potential migration to “non-compliant” models and a “reluctance [by] contractors to travel long distances for work”.

Payroll firm No Palaver agrees: “The rules will dissuade workers from taking assignments where they have to travel long distances – therefore reducing labour market flexibility.”

Moreover, it is all contractors – brolly and PSC ones – who potentially are affected, even though the proposal was initially only “aimed at umbrella” contractors, says Quantic UK.

“There appears to be a determination to restrict; even eliminate the ability of [all] contractors to claim relief on travel and subsistence [if ‘SDC’ applies]” says Quantic UK’s Mike Hough.

Another tax expert, FreeAgent, sees it the same way. It says brolly users were the target ever since December but the measure is now going to “affect both umbrella companies and PSCs.”

Indeed, IPSE says the measure is “likely to require those working through their own company to prove they are not under the supervision, direction and control of their” client.

“We hope that there will not be an onerous or unfairly high burden of proof to do this,” said the Association of Independent Professionals and the Self-Employed’s Simon McVicker.

“[But] we have reservations about how this can be done in a way which is fair, proportionate and easy to comply with.

“[That’s because] in the past, new legislation such as the ‘onshore’ rules have caused a great deal of disruption and confusion to the marketplace for contractors.”

More positively, the association believes that all the signs so far suggest that HM Revenue & Customs is “serious about consulting” on the relief removal, sometime in the summer.

In the meantime, Ship Shape Pay claims that recruitment agencies and their clients could run an analysis of their contract workforce, to see if certain changes can be made. 

The idea is to “identify if umbrella workers should transition” to PAYE (direct via agency); a limited company or self-employed if, in such forms, SDC by the client can be proven absent.

However a legal advisory to umbrellas, agents, clients and contractors sounded less ready to advocate taking action now. “As always, the devil will be in the detail,” cautioned Egos.

“There’ll be further consultation first; HMRC hasn’t yet decided how to implement it. But note; the [separate] Treasury consultation on travel and subsistence… has been extended until next May.

“That suggests the end result of that [HMT review] will not be available until after next year’s Budget.”  

And this is potentially significant, as it implies that April 2016 is a hasty commencement date for the rules, if Marc Scott, a director at Liberty Bishop, is right. On the Budget’s eve, he told ContractorUK:

“The HMT review is the broader piece of work, and is the one which, ultimately, is intended to set in place the underlying principles upon which...HMRC’s more specific review would need to be based.

“If the government are aware that they need to re-formulate the foundations, it would seem strange to proceed with specific changes…that could potentially be out of sync with those new foundations once they’re in place.”