New rules came into force in April for intermediaries paying travel and subsistence expenses, and they’re bad news for a huge number of workers.To continue paying tax-free expenses to workers, intermediaries have to prove that individuals are free from “supervision, direction and control” (SDC) when providing their services.
In fact, it doesn’t even matter if the SDC is never put into action – only that it could be. This basically brings the rules in line with the agency legislation (s44 ITEPA 2003) about treating people as self-employed. Proving that there’s no supervision, direction or control is left to the intermediary, and it’s far from easy. It involves looking at the contractual terms between everyone involved and considering how each individual provides their services.
What Are The Differences With The Previous Expenses Rules?
There’s an important difference between the new expenses rules and the agency legislation. Under the agency rules, the agency remains liable even if another intermediary sits below them in the contractual chain and hires the worker. With the change in the expenses legislation, that liability falls on the intermediary operating PAYE. With this in mind, agencies may decide that continuing with an umbrella company that pays out expenses poses less risk to their business (as long as the agency plays by the rules). If the umbrella company can’t provide any evidence at all to show there’s no control, the Directors of the umbrella company will be personally liable.
The strange part of this legislation is that workers who aren’t under supervision, direction or control in their work may not technically be employees at all. This could mean an increase in Elective Deduction Models. For example, individuals may end up working PAYE but missing out on employment rights like holiday pay because they aren’t actually employees. They’re just taxed as such to comply with PAYE and National Insurance legislation.
What Do The New Expenses Rules Mean In Practice?
The upshot of all this is that there’ll be fewer circumstances where umbrella companies will be willing to pay expenses – and fewer companies prepared to do it at all. Those that do will need to work closely with agencies to make sure the rules are followed. Terms and procedures throughout the chain will need to be checked and the work undertaken will have to be reviewed regularly.
Losing the ability to claim travel and subsistence expenses will be an unwelcome blow to most workers. At the end of the day, they’re the ones who’ll be left worse off. Just as importantly – if the rules aren’t followed to the letter, the ride’s going to get a lot bumpier for everyone.
Get in touch with RIFT Legal Services 01908 516016 to make sure you and your workers are making the best of a difficult situation.