Government proposal to claw back millions by banning tax relief on travel expenses
The government has outlined further details on the course of action it plans to take in order to regain the reported £400m lost income tax and National Insurance Contributions associated with umbrella companies and temporary workers.
One ‘potential way forward’ explained in the discussion paper is to introduce legislation which bans umbrella workers, and any individuals engaged under overarching contracts of employment (OAC) by employment intermediaries, from claiming tax relief for travel, and associated subsistence, from their home to the client’s workplace.
This could also potentially affect Personal Service Companies (PSCs) who are also often eligible for travel and subsistence relief for home to work travel. The paper states that “if PSCs were excluded from any changes, there is a risk that employment agencies may be incentivised to encourage individuals to work though their limited company in order to continue to get tax relief on their home to work travel”.
The alternative option discussed is to restrict the availability of tax relief for travel from home to the workplace, and associated subsistence costs, where the individual was employed by an intermediary specifically under an OAC. As this option would specifically or solely affect people employed under OACs such as umbrella contractors, this would not have any impact on PSCs.
Matthew Brown, Managing Director of giant group comments, “While this consultation was expected, it presents a number of concerns for us and the contractors that are employees of giant. The proposals suggest that the government will either take away the ability to claim travel and subsistence for umbrella employees and those working under PSCs or remove the ability to claim travel and subsistence for umbrella employees only.”
“This will understandably cause a level of apprehension for contractors and we would not want to see any professionals negatively impacted simply because they have chosen a flexible employment route. I would also urge the government to consider the potential consequences of such a move. In particular, removing the ability to claim tax relief for just umbrella employees could result in a rush for workers to operate under a PSC for the wrong reasons.”
“And while giant will certainly be lobbying the government through its involvement with the Freelancer and Contractor Services Association (FCSA), the short timeframe is a concern. We will ensure that, through our network, our argument is put forward on behalf of the contractors we represent.”
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