We also heard from recruitment agencies who said that there was worry in the temporary sector that workers would now choose direct or permanent placements.
Whilst the impact for recruitment agencies is far-reaching, there still remains great uncertainty and a lack of clarity, in part due to the complexity and a lack of guidance from HMRC.
It is important that those offering temporary placements understand which workers are caught by these new rules, allowing them to offer the necessary guidance to workers and also strategically plan their own business model.
So here, Leighton Bower, our Partner who assists a number of our recruitment clients, looks at some scenario’s to help clarify the rules.
What are the new rules?
The new legalisation states that if a worker comes through an employment intermediary (i.e agency, umbrella, personal service company etc) then each engagement will be treated as though it was an employment, thus creating a series of ‘permanent placements’, which therefore deny tax relief on home to workplace travel, as this will be deemed as ordinary travel.
The rules go on to state, and hereby creating some area for interpretation, that this applies to those supplying personal services (skills or labour) under the supervision, direction or control (SDC), of any person, in the manner in which they undertake their role. So what does this mean in practice?
- Supervision is someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard.
- Direction is someone making a person do his/her work in a certain way by providing instructions, guidance or advice as to how the work must be done.
- Control is someone dictating what work a person does and how they go about that work. Control also includes the power to move the person from one job to another.
How much will it cost workers?
For example, take a construction worker, who claims an industry average of £144 of weekly travel expenses. Under the new rules, expenses and subsistence costs will be taxed at 45% (20% income, plus both employees and employers National Insurance Contributions). This will mean a loss of £64.80 per week, or £3,369 per year.
Example 1
Again using the example of a construction worker, imagine that you were to place a self-employed construction worker who will work short-term contracts (a month each) for several construction firms over the year. When we consider the rules, there could be two very different outcomes.
If the position was for a Site Manager, where they are not under SDC and employed on short-term contracts at different locations, the rules would not apply and they could claim tax relief on travel expenses or subsistence.
If the position was an Electrician, they are likely to be under control of someone, such as a Site Manager or Project Manager, and therefore they would be subject to SDC and not be able to claim tax relief on travel expenses or subsistence.
In regulated industries such as medical or financial services where somebody will have the right to check that their work complies with regulated standards, SDC will most likely apply in all cases, which unfortunately ‘widens the net’ of those caught by these rules, says, Leighton Bower.
Example 2
In our second example, an IT contractor is offered a 9 month contract through his/her personal service company. Here, you might need to first consider the wider picture. What was he/she doing before this contract, was he/she an employee and what will they do after the contract? If this position is not caught by the SDC test, the worker will be entitled to claim tax relief on travel expenses, as well as accommodation cost etc should they need to stay near to the workplace.
It should also be noted that he/she should be careful of not falling foul of the IR35 rules regarding disguised employment, as this will cause the workplace to be deemed a permanent place of work, and ordinary commuting expenses would be denied.
Conclusion
The rules certainty lack clarity and we expect the situation to get increasingly complicated with the rise of the gig economy and flexible working practices.
If you would like further advice on your own exposure or interpretation of these rules please do contact our team.
Leighton is Managing Partner at Rouse Partners and supports a wide-ranging client portfolio. He also specialises in business advisory and corporate finance work.