EXPENSES UNDER THE MICROSCOPE AGAIN

The Government is currently carrying out a consultation about tax relief for travel expenses claimed by workers with 'overarching employment contracts' (such as contracts with agencies and umbrella companies). This doesn't affect workers who are self-employed and genuinely in business on their own account.

Why the Government is looking into this:

First, HMRC (HM Revenue & Customs) has seen that some 'umbrella company ' service providers are abusing the system by suggesting they can reduce workers' tax liability because they have a 'dispensation' from HMRC that allows their contractors to claim up to their daily limit on travel and subsistence without receipts. This is utterly wrong. Expenses must always be legitimate and, apart from certain limited scale rate payments, supported by a receipt. If HMRC investigates, it is the contractor who could be liable to pay additional taxes and a fine if they are abusing the system (even if their service provider has misled them)
Second, the Government is considering whether allowing temporary workers with overarching employment contracts to claim travel and subsistence relating to their travel to and from work is unfair to employees and workers on permanent contract (who can't claim these expenses).
Equally important, of course, is that the Government sees a potential loss of tax revenue because of the widespread abuse of the expenses arrangements, especially where dispensations have been granted to employment agencies and umbrella companies.

The truth about 'expense dispensations'

Dispensations are designed simply to reduce paperwork for the HMRC and employers, because organisations to which it has been granted don't need to produce a P11D form (certificate of expenses claimed) at the end of the year.

There's no way this makes it possible for workers to claim more expenses without receipts. The guidance is the same as ever: 'all expenses must be incurred wholly, exclusively and necessarily in the performance of your duties'.

So what happens now?

The Government has published a consultation paper to gain feedback and evidence from all concerned until 13th October 2008. At Gabem, we have always protected our operatives by insisting on legitimate expense claims with full receipts. We have discussed our processes with the HMRC who are more than satisfied that we take due care in determining the legitimacy of expenses and we will be providing this information to Government in the consultation process and engaging with our advisers with the aim of helping to achieve a fair outcome for contractors, freelancers and temporary workers.

Later this year, the Government will decide whether or not it needs to take action. There are two likely options on the table:

Continue the existing arrangements but introduce legislation to tackle non-compliance. One possibility might be the introduction of 'debt transfer' for non-compliant umbrella companies (which could make them liable for their contractors extra tax liability)
Remove the entitlement to tax relief for travel expenses for umbrella companies and employment agencies that use overarching employment contracts.

As soon as we know any more, we'll make sure you're up to date with developments.

Steve Girdler