Travel expenses
This section covers:
- How to deal with work-seekers’ travel expenses under the Conduct Regulations
- What the travel and subsistence dispensation is
For information about tax changes in the Finance Bill (2016), see our webinar.
See also the gov.uk business tax guidance "Employment intermediaries: personal services and supervision, direction or control", which was added 6 April 2016. However, the REC have some concerns about the guidance which we have put forward to HM Revenue & Customs to review.
Travel and subsistence expenses
UPDATE: The Government confirmed in the Autumn Statement on 25.11.15 that it will remove tax relief for travel and subsistence (T&S) costs from temporary workers working under or subject to the right of supervision, direction or control of any person. This will include individuals working through employment businesses, umbrella companies, personal service companies and other entities. The changes will come into effect from 6 April 2016.
HMRC published its response to the consultation, draft legislation and guidance on 09.12.15. The legislation is subject to change, though from a technical rather than a policy perspective (we must feedback to HMRC by 03.02.16). The REC have prepared a Briefing on Changes to Travel and Subsistence expenses relief to explain the draft legislation. We will keep members updated in the coming weeks and months (future webinar and meeting details can be found in our events section). In the meantime we remind members to do the appropriate due diligence on all intermediaries they are thinking of engaging with, including umbrella companies, CIS intermediaries, personal service companies and partnerships - See the above briefing document for an intermediary checklist for members to use. In particular ask them detailed questions about how they are going to respond to the removal of T&S relief. New models of supply are likely to emerge - we recommend that members do not sign non-disclosure agreements that do not law them to seek legal or tax advice on any alternative models.
Finally members are advised not to rely on tax investigations insurance to avoid doing the appropriate due diligence or for supplying temporary workers on contracts which state they are not subject to supervision, direction or control when the reality is quite different. Such insurance may be expensive but it will certainly be heavily caveated and will only pay out where appropriate reviews have been carried out and their results followed through. Also check who is the insured party – is it the REC member or the umbrella company/ personal service company supplying the temporary worker?
What are the current rules on claiming T&S expenses tax relief?
Despite the changes it is worth reminding members what T&S expenses tax relief is. T&S expenses claimed through pay are excluded from Class 1 NICs and are tax deductible (where certain conditions are met). Therefore temporary workers claiming T&S expenses relief can be significantly cheaper, and therefore more attractive, to clients.
Ordinarily individuals cannot claim tax relief on normal commuting costs i.e. the costs of travelling from home to a permanent workplace. However, there are rules governing travel and subsistence expenses incurred in connection with business travel. Such expenses are excluded from Class 1 National Insurance contributions and are tax deductible provided:
- the individual claiming the relief is an employee (for temporary workers this means being employed on an overarching contract of employment (by either an umbrella company or an employment business);
- the employee does not have a permanent workplace (a workplace will be apermanent workplace if the employee works there for a period of more than 24months); and,
- the employee actually incurs those travel and subsistence costs.
The expenses are deducted from the temporary worker’s gross earnings, often by way of salary sacrifice (though this will also no longer be permissible from April 2016). These deductions do not attract national insurance or tax. Only the sum left after the deduction of the expenses attracts national insurance and tax. Therefore temporary workers whose employers applied T&S expenses relief are significantly cheaper than those whose employers do not.
Compliance activity
There have been attempts to close down some T&S schemes in recent years, some successful but others not. In 2011 the GLA refused to grant a licence to an umbrella company (FSC) operating a “pay day by pay day” model (of course that only meant that FSC could not operate within the GLA sector, it didn’t prevent FSC operating in non-GLA sectors). Later that year HMRC issued two statements saying that these schemes did not comply with T&S rules. In 2012 the First Tier Tribunal found that Reed owed £158 million in unpaid tax, NICs and interest. Reed had various dispensations from HMRC to operate salary sacrifice arrangements but were found not to have operated these correctly. Reed lost subsequent appeals to both the Upper Tribunal and the Court of Appeal. HMRC finally consulted on T&S in the summer of 2015 to which REC issued a response. The Government confirmed in the Autumn Statement that it will proceed with removing T&S relief from temporary workers working under (or subject to the right of) supervision, direction or control (details at the top of this FAQ).
For a historic discussion on T&S see the Jan/ Feb 2013 issue of the Legal bulletin.
In order to take this temporary position the travel expenses are quite high and the worker has asked if I can arrange free travel or a loan. Is there anything I should do?
If you agree to arrange free travel or payment of the fare to the place of work for a work seeker (or the person who would be supplied to do the work if the work seeker is a limited company) who will not be the hirer’s employee or is under the age of 18, you shall either:
- Arrange free return travel or pay his/her return fare; or
- Obtain an undertaking from the hirer to arrange free return travel or pay his/her return fare; and if the hirer does not comply with his/her undertaking you must arrange free travel or pay the fare; and
- Give the work seeker details of the free travel or payment including any conditions that apply.
If in order to take up a position with a hirer the work seeker (or the person who would be supplied to do the work if the work seeker is a limited company) is to be loaned money to meet travel or other expenses:
- The work seeker may not be required to repay the lender a sum greater than the sum loaned, i.e. the work seeker may not be charged interest on the loan;
- You must give the work seeker a document setting out the amount loaned, and so far as you aware, the details of repayment.
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.