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The April 2016 Finance Bill: Subsistence & expenses treatment: What are the risks?

Sprite’s Sales Director Jay Pittaway explains the changes to tax relief on travel and subsistence expenses.

The Finance Bill was published on 24th March 2016 and the changes to tax relief on travel and subsistence came into law on 6th April 2016.

 
What are the changes?

here are 2 key pieces of legislation that affect the payment of expenses – these relate to ‘what’ can be claimed (the temporary workplace rules) and ‘when’ tax relief can be given (salary sacrifice rules).

  • Temporary workplace rules:  Basically travel and subsistence expenses (home to site) are not allowable for tax relief if the operative is under (or subject to the right of) supervision, direction or control (SDC).  This will affect most PAYE operatives.  If SDC is not present, the whole contractual chain must prove this position.
  • Salary sacrifice rules: Prior to 6th April 2016, most umbrella companies applied business expenses by way of a ‘salary sacrifice’, which meant operatives forfeited part of their pay (taxable income) to claim non-taxable expenses.  From the 6th April 2016, this new legislation has deemed salary sacrifice schemes to be unlawful. We are well aware of umbrella companies continuing to operate non-compliant schemes, which can leave all parties to the supply chain at risk, including the end client, the agency and the individual operative. Please exercise caution when choosing an umbrella company to work with.

What does this mean to employees/operatives?

  • Umbrella employees who previously claimed travel and subsistence expenses from home to a single site will not be able to do so going forward unless it can be proved that the assignment in which the work is being carried out is not subject to SDC, both contractually and in reality.
  • Tax relief for any other allowable expenses that are incurred wholly, exclusively and necessarily in the performance of employment duties cannot be claimed weekly through an umbrella company via a salary sacrifice scheme. 
  • For most this will mean that only tools, clothing, equipment, training/professional costs or site to site travel (multiple sites) can be claimed; however, this cannot be given as a weekly benefit and must be claimed at the end of the year. 

What are the risks?

There are some umbrella companies continuing to operate non-compliant schemes, and this can leave all parties to the supply chain at risk, including the end client, the agency and the individual operative.

Please exercise caution when choosing an umbrella company to work with and consider the following:

  • Transfer of Debt provisions – could affect ALL parties in the supply chain.
  • Targeted Anti Avoidance Regulations (TAAR) – mass migration of operatives to CIS models (with dubious so called SDC tax insurance!) or mass use of PSCs may be viewed as avoidance by HMRC.
  • Fines – HMRC have the ability to issue fines for non-compliance with tax legislation.

Dale Simkiss, Operations Director at Sprite explained Sprite’s stance on the changes:

“It is a time of uncertainty and it is important that agencies have trusted payroll partners to avoid smearing of their reputation or the possibility of transfer of debt rules being enforced. “

“Sprite has always operated with compliance at the heart of the business and we will continue to do so, even in this fiercely competitive market. We constantly seek the best legal advice from the industry’s top legal firms and we are confident in our position on the new legislation changes.  We are in good company with this approach as our main large competitors are adopting the same stance.”

“Many operatives may still have allowable expenses that are incurred ‘wholly, necessarily and exclusively’ in the performance of their employment duties and it is rightly so that tax relief should be claimed for these expenses. It is our position that the only way tax relief can now be claimed on these expenses is via an end of year claim to HMRC.”

 

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