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UK Workers Warned On Umbrella Company Rule Changes

by Amanda Banks, Tax-News.com, London

27 July 2016


The Low Incomes Tax Reform Group (LITGR) has urged UK workers to consider their relationship with umbrella companies carefully, following the introduction of strict new travel and subsistence relief rules.

In April, new rules were introduced to amend the tax treatment of travel and subsistence expenses for workers providing their personal services to clients through employment intermediaries.

According to HM Revenue and Customs (HMRC) guidance, "When these new provisions apply, each engagement the worker undertakes will be regarded as a separate employment for the purposes of travel and subsistence and therefore the worker's travel and subsistence will be treated as if they were directly employed by the engager. This will mean that generally no relief will be given for home-to-work travel costs and associated subsistence."

LITGR said that, in spite of the legislation, umbrella companies continue to exist, in part because many agencies are unwilling to deal with taxes and day-to-day staffing issues and prefer to delegate such matters to umbrella companies. It warned that, in an attempt to attract workers, umbrella companies may try to "sell" the other non-travel-expense related benefits that they can provide.

LITGR Chairman Anthony Thomas said: "If you are thinking of paying a fee to an umbrella company, it is important to understand what you are getting for your money – you should not just accept things you are told about still being able to claim for expenses other than those related to home-to-work travel for example, without trying to understand for yourself how worthwhile this really is to you."

LITGR has produced a guide for workers, which covers the key tax-related issues that could arise from engaging with an umbrella company.

Thomas explained: "The general expense rules, which apply equally to those under agency Pay As You Earn (PAYE) as to those working for an umbrella company, are very tightly drawn, meaning there may be few expenses for the umbrella company to process. The general test is that the expenses must be 'wholly, exclusively, and necessarily' incurred in the performance of the employment."

"In addition, even if you do have some expenses that qualify for tax relief, the umbrella company should probably not be giving you tax relief there and then as part of your weekly/monthly payroll. Instead you will need to claim tax relief at the end of the year – assuming that your potentially fluctuating earnings over the course of the year mean you pay enough tax to do so (the personal allowance is GBP11,000 (USD14,422) in the 2016-17 tax year – below this you will not pay any tax, and therefore cannot claim any tax relief) – which is actually just the standard position for workers across the board."

TAGS: compliance | tax | tax compliance | tax incentives | revenue guidance | United Kingdom | payroll | tax authority | legislation | HM Revenue and Customs (HMRC) | tax breaks | trade association | HM Revenue and Customs (HMRC) | trade | services

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