100% of ARC meeting attendees think travel & subsistence relief proposals will be detrimental
The debate, attended by two speakers from HMRC, a Treasury representative, and speakers from the FCSA and IPSE as well as the host, ARC, related to the current consultation on “employment intermediaries and tax relief for travel and subsistence”, which is due to close on 30th September. “Some published reports suggest that damage will occur, but what is the evidence?” asked Adrian Marlowe, Chairman of ARC.
The consultation proposes that the tax reliefs which are currently available to employed workers travelling to and from a temporary place of work, should be limited only to those who are not under the supervision direction or control (SDC) of the hirer. An HMRC spokesman explained that this test would bring the expenses rules into line with other recent agency tax legislation, cover off unintended consequences, and that Ministers had already decided that the tax relief should be limited following a discussion paper last year. The consultation is to consider how this is to be implemented.
The audience did not think the current proposals are the way forward. Julia Kermode speaking for the FCSA which represents umbrella companies and accountants said “it is nearly always possible to formulate an argument that a right to SDC exists in every type of engagement, and so why bother to have a test at all. The proposal does not work fairly and the timing is wrong.”
On the HMRC proposal that the hirer could be liable for unpaid levels of tax, Marlowe commented that risk averse hirers will generally not want to see any scheme in place, and will insist on retaining the right to SDC. “Most temporary worker indemnity insurances ask for the hirer to have that right in any event. Also any tax which threatens the hirer could have the effect of deterring the hirer from using agency workers in principle, which is not helpful for the temporary and contractor supply industry.”
Attendees pointed to an already existing skills shortage in the UK. Different sectors may be affected in different ways, the aerospace sector being identified as one where costings are on a knife edge and airlines could easily move their maintenance and servicing to already existing foreign competitors. This risks losing both temporary and regular jobs in the UK. Manufacturing could also be affected, particularly the automotive industry as costs will inevitably increase, but Marlowe pointed out how difficult it would be to provide evidence of damage to the flexible workforce ahead of planned implementation of the proposals in April 2016.
Another theme that arose was why the government is so keen to push ahead with new potentially damaging proposals when the last round of tax changes under the agency tax rules have had no time to be assessed. “Agencies have only recently filed their first returns under the agency tax reporting rules, surely there should be some assessment of the results first” questioned Andrew Chamberlain of IPSE, who was present to talk about HMRC’s discussion document on IR35. “We can’t help but view there being a link between the consultation and discussions relevant to IR35” he commented.
Referring to the confusion that could arise from multiple tests relevant to agency tax and intermediary tax, as well as possibly IR35, Marlowe urged HMRC to take a much more simple approach. “Ministers want to recover what they see as some £265m from tax avoidance, but the rules have always allowed relief for all workers travelling to a temporary place of work. The idea that an agency worker is not travelling to a temporary place of work is not rational, but we all understand that HMRC wants to stop abuse of the rules or their widespread misuse. So there are two elements, first the lost tax and NICs revenue, and then the question of flexibility of the temporary workforce – do we want a flexible workforce or not?”
“On the question of lost tax, why not remove reliefs for some kinds of subsistence, for example lunches. Why do you get relief if you buy a sandwich away from the office, but not if you are at your regular place of work – the cost is the same” Marlowe said. “This could be done across the board and could instantly make tax savings for HMRC without affecting any flexibility at all”.
On the question of a test for an expenses rule Marlowe explained “We would like HMRC to look at this in a different and more straightforward way. Agency workers by definition work at temporary places of work and their status in practice is entirely different from regular employees of the hirer. Scrap requirements for overarching employment contracts and any SDC test. If they are an agency worker, perhaps as defined by the Agency Worker Regulations 2010, they have that status and this should be sufficient as the test.”
He said that a simple test makes everyone’s life easy, but on flexibility he pointed to the disadvantage that agency workers suffer from. “Because they are all temporary placements they cannot take advantage of various opportunities that long term permanent employees have. One example would be travel costs, savings achievable from season tickets are not available for short term arrangements, and no one is going to re arrange their housing around their temporary place of work. As agency workers also do not have the benefit of employment rights as against the hirer, if you remove the tax reliefs, you at the same time remove some of the incentive for anyone to work on a temporary basis. Logically this can only result in a reduction in flexibility as agency workers choose not to travel as far as they otherwise might. Although this is more likely to be the case at the lower end of the pay spectrum, all the same there could be a long term knock on effect that does not work to the UK’s competitive advantage.”
Marlowe urged “It’s really important that agency workers status should be seen as different from that of regular employees, not only for tax reasons but also for employment rights reasons. Agency workers have agency worker rights so should not be seen as employees of the hirer in any capacity. If the government would accept the logic of that argument, which we have been proposing for several years, then not only could that address a key point that hirers have always been worried about, but it may assist in simplifying this entire tax area also.”
The conclusion from the meeting was that it could be a solution to remove tax free lunches and time limit the entitlement to other reliefs, for example, to 6 or 12 months, down from the current 24 months, so ensuring the reliefs only apply to genuinely temporary jobs, a point which both Kermode and Chamberlain supported. Simplification and support for temporary supply, rather than more complexity and confusion would be the preferred outcome. These were points that the HMRC representatives agreed to take away and consider.