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Travel and subsistence: Members respond

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8th Oct 2015
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AccountingWEB asked members for their comments on the HMRC discussion document on Travel and Subsistence

Jennifer Adams has submitted this response being a compilation of the total of 15 comments made to the two articles posted: 'Expenses consultation: Travel and Subsistence' and 'Mooted travel and subs rules wont work'.

General comments

The proposals contained in the consultation paper will affect many more Personal Service Company’s (PSC’s) than the number of other types of entities listed i.e. those of ‘umbrella companies and agencies. Nearly every Accountingweb member has PSC clients that will be affected by the proposals therefore the comments made by members concentrated on the impact on that group of businesses rather than the other entities.

It is the overwhelming opinion of members that HMRC’s aim of achieving a ‘level playing field’ will not be achieved by these proposals. Members understand that the proposals were intended to apply to entities as such as ‘umbrella companies’ but are concerned that PSC’s are also being targeted. One member commented that: ‘The feeling is that PSCs are caught in the cross-fire of an anti-avoidance war with a minority of employment service companies who are abusing the current rules’.

The reason given for PSCs being included is that should the tax relief restrictions be applied only to ‘umbrella’ and ‘employment service’ companies, then those companies would automatically transfer their clients to PSCs to retain the tax relief. The main flaw to this argument is that HMRC do not appear to appreciate that there is no similarity between the companies being charged. HMRC are really saying that PSC’s are used for tax saving purposes only and are ignoring the fact that there are many other reasons for setting up a PSC. PSC’s trade in knowledge and skill set rather than goods but they still have the same administration costs. The proposals ignore the fact that the new ‘dividend tax’ rules due to apply from 6 April 2016, will reduce the attractiveness of a PSC as a tax saving vehicle alone.

HMRC appear to believe that all PSC’s are all the same – i.e. all working for one main ‘end user’ for a period of time whereas in truth they may work for a number of contracts at the same time or one contract after the other. Contractors take on risks which permanent employees do not e.g. the financial risks of correcting mistakes, thus possibly needing to take out Professional Indemnity insurance, they have the worry about finding the next contract and not having the security of a job and the benefits that being an employee can bring.

Why now?

The document states that the governement are reviewing the whole area of travel and subsistence. Members are concerned that by implementing the proposals in this document now rather than waiting ‘to review the whole’ is a ‘knee jerk reaction’ to the abuse of the current rules by a minority of employment ‘intermediaries’.  

Root cause of the problem – i.e. HMRC are targeting the wrong people

Members are of the opinion that the root cause of the problem that the consultation document is trying to address is that ‘end users’ are the ones who are shifting their responsibilities and risk onto contractors, who often are not appreciative of the risks and not properly advised. 

As one member put it:  “Its funny that the worker always appears to be seen as the villain when it is the engaging company that is pulling the fast one - no Employers NICs, no auto-enrolment and no worries about employment law’. Members believe that HMRC are targeting the wrong entities – it is the ‘client/ end user’ who is at fault and benefiting. Should these proposals be implemented this situation will remain but the PSC’s will be the loser.

HMRC’s role

The document states that ‘If HMRC identifies that the rules for travel and subsistence tax reliefs have not been applied compliantly’ – note the word ‘if’. How will HMRC be able to check that the rules are being complied with? Given the low number of compliance and investigations that have been undertaken to date under IR35 HMRC are obviously not finding it cost effective to undertake such investigations.

Question 1: Do you agree that the structure of the proposed legislative changes will achieve the policy objectives?

It is the members’ opinion that the proposed objectives cannot achieve the policy objectives. The main objective is ‘to ensure a level playing field for all workers and businesses paying tax and National Insurance Contributions’ - attacking PSC’s rather than the ‘engager’ means that the ‘engager’ remains the winner – see ‘Root cause of the problem’.

Question 2: Will there be any consequential difficulties in administrating each engagement as a separate employment?

It is the members’ belief that PSC’s will have no additional administration difficulties.

Question 3: Are there any particular professions who will be significantly affected by these proposals?

It will mostly be the IT profession that will be hit as well as those detailed in the consultation document.

Question 4: Will these changes result in a significant shift in the way those affected are employed? If so, what would this shift be and what would be the impact for the workers concerned?

The restrictive definitions of ‘supervision, direction and control’ will mean that in many situations it will be uneconomic for the contractors to work on contracts located some distance from their main base/home. Insurance premiums for PSC’s will rise and will probably be a requirement insisted upon by the ‘engager’. The cancellation of the travel etc tax relief plus the new ‘dividend rules’ will make the PSC uneconomic in many cases thus forcing the contractor to become self employed with the added insecurity that could entail. The rules will not force the ‘engager’ to take the contractor on as employed as HMRC believes so once again the ‘engager’ would be the winner.

The proposed changes will not apply to overseas contracts. The type of PSC that will be hit most will be in those on the IT industry who can do their work anywhere – abroad or in the UK.

Question 5: Would the definition of ‘employment intermediary’ as proposed cause any practical difficulties? Please provide details and examples.

The practical difficulties are as detailed. Plus there is no justification for exempting large professional service firms and not one-man PSC’s. How will ‘large professional service firms’ be quantified?

Question 6: Do you agree with the definition of the terms ‘supervision, direction and control’ and will these definitions cause any practical or commercial difficulties? If so, what will these difficulties be?

These words are taken from the IR35 rules and have been abandoned as being nearly impossible to use. In this document it is noticeable that any one of these conditions may require the proposals to be operated whether caught under the separate IR35 rules or not. By the very nature of the work of a PSC that delivers services rather than goods, all client companies for whom the PSC will work will have their own thoughts (‘direction’) as to the end product – it is how the PSC creates that end product that is paramount. The document states that the ‘It will not be enough that the terms of the contract imply a lack of supervision, direction or control, but in reality the worker is supervised’. If the contract is not to be believed how will ‘supervision etc’ be proved?

Question 7:

Which option for a transfer of liability would work best to ensure future compliance,

Option 1 or 2?

It is the opinion of members that neither option will achieve the objectives not least because the consultation states that it will be the ‘engagers’ responsibility to decide the ‘control’ etc situation. Even if it is agreed that there is an element of ‘control’ for example the ‘engager’ has no way of knowing whether the ‘intermediary’ has complied with the rules. In addition, how is the ‘intermediary’ to prove that they had been ‘mislead’ by the ‘engager’?  Does the ‘intermediary’ need to tape every conversation? There will also be the very real problem for the ‘engager’ that the ‘intermediaries’ can easily close overnight leaving the ‘engager’ to prove their role, and if there is an unpaid tax bill the ‘engager’ may find himself liable through no fault of its own (option 1).
In nearly every situation, the ‘engager’ will confirm that a PSC situation exists and in the contract state that the PSC only will be liable. The PSC will have no say in the matter. The document is not clear as to which ‘engager’ will be ‘jointly and severally liable’. It is assumed that this will be the agency or ‘umbrella’ business rather than the end ‘engager’. With a PSC the ‘engager’ will be the ‘end user/client’.

Suggestion – tax the ‘engager’ – comments

  1. ‘Surely the simplest solution would be to leave small companies and dividends alone and just impose an equivalent of employers NICs on the ‘engager’ by making them pay the tax and NI they would have paid (or at a higher rate) if they'd taken on an employee’.
  2. ‘If they made it difficult and uncomfortable for the ‘engager’ then they would stop using so many contractors to do real employee jobs and hire employees instead, which is the real mischief that needs to be addressed’.  
  3. It seems to me that the new ‘dividend tax’ goes most of the way to align PSC taxation to be similar to self-employed tax and Class 4 NIC. So the only "tax gap" left to address is the lost Employers NIC.
     

Summary

Members of Accountingweb are of the opinion that these changes will pre-empt the over-review into the whole area of travel and subsistence ‘by casting in stone a quick fix to the abuse of the current rules by a minority of employment intermediaries’. Those employment services companies who are abusing the current rules will continue in their abuse. 

The proposals will not solve the perceived problem and the ‘supervision, direction or control’ conditions are too restrictive and imprecise to be of use.

HMRC do not have the resources to enforce the proposals.

Replies (2)

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By Michael C Feltham
12th Oct 2015 13:53

Typical of Ivory Tower Syndrome: © (PDD (Resources) Ltd).

One day- too late! - the great gods HMRC and their political advisers in treasury - may take the time to come down from their lofty pinnacle above Mount Olympus and visit us normal mortals slaving away in the Real World to earn a crust!

Don't hold your breath........

Just wait: the next target will be accountants, lawyers et al, charged with having the bloody temerity of owning a car in which to visit clients, far and wide.

How dare we charge actual business mileage etc! We should travel by public transport and consider ourselves lucky.

 

 

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By justsotax
12th Oct 2015 14:15

having sat through a recent

AML seminar I think the Revenue's next move is to make us part of the border force agency (unpaid obviously) and start charging penalties on us as they do with those unfortunate lorry drivers who have immigrants hanging off the underside of their vehicles.

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