All change for travel and subsistence expenses

Posted on: June 1st, 2016

With effect from 6th April, certain temporary workers are now restricted from claiming tax relief on the travel and subsistence expenses they incur.

The restriction applies to workers who are engaged through an employment intermediary, such as an umbrella company, a recruitment agency or their own limited company, and who work under supervision, direction or control in their role. This brings such temporary workers in-line with the tax position of permanent employees, who do not receive tax relief for the cost of their daily commute.

Only those clearly not under supervision, direction or control in their role will be able to claim tax relief for journeys from home to work. This means that genuinely self-employed contractors, working outside of IR35, are not affected by the recent change.

What was the Government’s motivation?

Chancellor George Osborne explained the reason behind the restriction when addressing the House of Commons in his Budget speech. He stated: “We will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed.”

The Government has commented that the change underpins its commitment to ensure the tax system is fair and treats individuals in similar circumstances in the same way. It is further evidence of the Government’s attempt to stamp out false self-employment and perceived tax avoidance.

What does a recruitment company need to consider?

Primarily, recruitment companies should seek specific tax advice before permitting temporary workers to claim tax relief on travel and subsistence expenses.

For those recruitment companies that supply temporary workers paid by another employment intermediary, it is important to bear in mind that the tax liability can potentially be transferred to the recruitment company. The change to the legislation provides that if a party in the contractual chain (i.e. the recruitment company) has produced ‘fraudulent’ evidence about a worker’s status (i.e. a contract), which causes a temporary worker to incorrectly claim travel and subsistence expenses, the liability for the tax shortfall could be passed to them. Directors can also be personally liable.

This means that recruitment companies must think very carefully before providing assurances to other employment intermediaries in the supply chain that a temporary worker is not subject to supervision, direction or control. Recruitment companies should review the wording in their contracts with umbrella and limited companies regarding supervision, direction and control and should also consider the inclusion of indemnity clauses to cover future tax liability.

For further information please contact Amanda Brockwell, head of our specialist Recruitment sector team.