In the recent Budget, the Government announced that it will be taking further steps on its attack on employment intermediaries. This time focussing on umbrella companies and personal service companies that operate overarching contracts of employment with its temporary workers to enable them to benefit from tax relief for home to work travel and subsistence expenses.
Overarching contracts of employment are contracts made between the worker and the umbrella or personal service companies for multiple separate work placements, but on terms and conditions of a single permanent employment. The worker will be required to travel to the end user client which is not their permanent employer. A worker is entitled to a tax free payment of travel and subsistence expenses for travel to such temporary workplace of the end user client.
From 6 April 2016, legislation will be introduced that will change the rules to restrict such tax relief where a worker is engaged through an employment intermediary, such as an umbrella company or personal service company and under the supervision, direction and control of the end-user.
The Government is also consulting on what obligations should be imposed upon the employment intermediaries to provide workers with greater transparency on how they are employed and what they are being paid. The Government proposals have been expected and follow its publication on this matter in December 2014.
Targeted employment intermediaries
Over the previous years the Government has targeted employment intermediaries with changes to the legislation challenging the self-employment status of certain workers and imposing notification procedures.
- From 6 April 2014, employment intermediaries who provide workers who are under the supervision, direction or control of an end user are required to deduct income tax and NICs through PAYE on the sums paid to such workers.
- From 6 April 2015, the employment intermediaries must return details of all workers they place with clients where they don’t operate PAYE on the workers’ payments. There will be penalties levied for failure to notify HM Revenue & Customs.
Implications for umbrella companies
The implication for umbrella companies of the new legislation is that the competitive advantage previously held in the employment agency market will be reduced. The options available to the umbrella companies maintain the current position is to either charge the end user more or pay the workers less, with HMRC seeking to take more income tax and National Insurance Contributions.
If you have any questions about the above or would like more information, please don't hesitate to contact me, or another member of the team below.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.