If you look like an employee and act like an employee...

02 September 2015

A government consultation on restricting tax relief on home to work travel for certain workers engaged through an employment intermediary is set to affect many thousands of supermarket workers, warehouse packers and care assistants. It could also force many intermediaries out of business – which is exactly what the government wants.

Bill Longe

In Budget 2015, the Chancellor announced plans to restrict tax relief on home to work travel for certain workers engaged through an employment intermediary such as an umbrella company or personal service company.

Ordinarily, employees who travel between their home and a permanent workplace are unable to claim tax and NICs relief for their commuting or lunch costs but they can when travelling to a temporary workplace.

However, those supplied via an employment intermediary can be eligible for relief on their home to work travel and subsistence expenses, in particular when the intermediaries use overarching contracts of employment, also known as umbrella arrangements.

Such arrangements effectively convert a series of separate engagements, each treated as being at a permanent workplace, into one employment where there are multiple temporary workplaces. As a result, the same work pattern attracts a different, advantageous, tax and NICs treatment.

Over the last few years, there has been a significant increase in the numbers of people engaged through employment intermediaries – partly because of changes in the labour market, partly because in today’s ‘gig economy’, individuals value the greater flexibility that temporary work offers.

However, concerns have been raised that the market has developed in a way that was not anticipated by Parliament and that a large number of employees and their ‘employers’ are able to access tax relief that the majority of workers cannot, even when these workers do very similar jobs. When umbrella companies market themselves on the basis that they allow individuals to legitimately maximise their income through the use of travel and subsistence tax and NICs relief, it is clear that the playing field is far from level.

The government’s stated aim is to bring those individuals employed through employment intermediaries into line with other workers. Supermarket workers, warehouse pickers and packers, care assistants and other jobs where it can be shown that ‘the manner in which the worker provides the services is not subject to supervision, direction or control’ are amongst the likely target groups. In reality though, it wants to kill off employment intermediaries that it believes are unfairly playing the rules to their own (and their employees’) advantage.

The tricky part of creating new rules to prevent such exploitation is in ensuring that genuinely independent workers who simply use an agency because it is the most efficient way of sourcing work are not penalised too.

However, the Government’s thinking is now very clear - if you look and act like an employee you ought to be taxed like an employee. 

If you would like to discuss any of the issues raised above, please contact Bill Longe or your usual RSM contact.