Changes to the tax relief for travel and subsistence for those working through an employment intermediary

These changes are part of HMRC’s strategic review to clarify the differences between employment and self-employment, and the use of employment intermediaries.  This review will ensure those who are in an employment relationship are taxed as employees, on a fair and consistent basis.

For the purposes of these changes, an employment intermediary will be defined as an entity, including a company, a partnership, or an individual, which interposes itself between a worker and the engager, as part of an arrangement for the worker to provide their personal services to the engager.  Employment businesses, umbrella companies and PSCs will be within the definition.

Overview of the changes

The government will from 6 April 2016 remove tax relief for ordinary commuting and associated subsistence. 

When a journey qualifies for tax relief employees are currently entitled to claim tax relief on subsistence expenditure that is incurred on that journey. This includes:

• any necessary subsistence costs incurred in the course of the journey
• the cost of meals necessarily purchased whilst an employee is at a temporary workplace
• the cost of the accommodation
• and any necessary meals where an overnight stay is needed as part of the journey.

The new rules would apply to workers who are:

• supplying personal services,
• engaged through an employment intermediary (including umbrella companies, certain employment businesses and personal service companies); and,
• subject to (or to the right of) supervision, direction or control of any person.

Where a worker’s employment meets the criteria set out above, the services the worker provides on each engagement will be treated as being a separate employment and will therefore be treated in the same manner as those on temporary agency contracts.  This is distinct from the ‘overarching contracts’ used by umbrellas and PSC’s.

PSCs and IR35

In general, those who have contracts that fall within IR35 will no longer be eligible to apply tax relief to travel and subsistence payments received for ordinary commuting and temporary living costs in respect of those contracts. The same rules and definitions will apply as above, including the definition and application of supervision, direction or control.

Umbrella companies

To pay expenses with tax relief, umbrella companies will have to be confident that an individual worker is not under supervision, direction or control whilst undertaking work for an engager. As these proposals align with the agency regulations introduced to tackle false self-employment, this should be a familiar concept, particularly where the relevant work has been found through an employment business.

Transfer of liability

Liability for any underpayment of PAYE will remain with the employment intermediaries and will therefore be the responsibility of the director(s) of that entity.