Employment intermediaries and tax relief for travel and subsistence

07 April 2016

On 9 December 2015, HMRC published a summary of responses received to a consultation on tax relief for the travel and subsistence expenses of temporary workers. This document confirmed that new legislation will come into force on 6 April aimed at preventing temporary workers benefiting from relief for income tax and national insurance on their expenses for ‘ordinary home to work commuting’ to temporary workplaces.

The current position

Current legislation states that:

  • a place of work can be temporary for up to 24 months;
  • workers can benefit from tax relief at source for travel between home and work if engaged through an intermediary; and
  • workers can claim £5 per day subsistence, if working away from their home office for more than five hours.

In light of these rules, umbrella companies (employment intermediaries) have typically provided employment contracts for contractors that set their permanent place of work as their home. After deducting a management fee, the umbrella companies have paid contractors a salary and reimbursed travel and subsistence expenses in accordance with these rules, effectively affording tax relief for T&S at source.

The legislation change

From 6 April, irrespective of where the contract sets the individual’s base location, if the contractor is under the supervision, direction or control (SDC) of another person in the manner their work is undertaken, each such assignment will be treated as a separate employment with its own permanent place of work. This means:

  • no tax relief on home to work travel; and
  • no £5 per day subsistence ‘allowance’.

Close attention should be paid to the wording of the final legislation. When the consultation document was published, it proposed broadening the definition of SDC to cover the right to supervise, direct or control. It also brought personal service companies within the definition of ‘employment intermediary’.


For end consumers of temporary labour

A provision introduced following the consultation process that would transfer liability for any tax or NICs arising to end consumers of temporary labour may be of concern. To ensure such a transfer does not arise, the end consumer will need to correctly advise the agency or intermediary whether or not the worker will be under SDC.

If a liability arises from excess tax relief being given at source to contractors, the directors of the intermediary entity can be held jointly and severally liable for unpaid tax with the intermediary itself.

However, if the end consumer provides incorrect SDC information to the employment intermediary, the resulting liability for unpaid tax would potentially be passed to them.

For umbrella companies

Contractors who are subject to SDC will no longer be able to obtain the same tax benefits from these umbrella company arrangements, but may still be charged a management fee. This could lead to contractors engaging directly with employment agencies that do not charge them a fee.

If we consider tax in isolation, temporary workers engaged as employees of agencies on the assumption that they are subject to SDC present reduced risk to the end consumer as there would be no unpaid tax resulting from home to work travel etc. However, there are wider commercial implications to consider. Contractors engaged in this way may lead, in some cases, to unnecessary increased costs for the end consumer.