EMPLOYMENT INTERMEDIARIES: TEMPORARY WORKERS RELIEF FOR TRAVEL AND SUBSISTENCE EXPENSES

Transcription

1 EMPLOYMENT INTERMEDIARIES: TEMPORARY WORKERS RELIEF FOR TRAVEL AND SUBSISTENCE EXPENSES Response by the Association of Taxation Technicians 1 Introduction 1.1 The Association of Taxation Technicians (ATT) is pleased to have the opportunity to respond to the discussion document Employment Intermediaries: Temporary workers relief for travel and subsistence expenses ( the Document ) published by HM Revenue & Customs (HMRC) on 16 December We have been asked to consider the use of Overarching Contracts (OAC) and the advantageous tax position they allow in that employees engaged under an OAC are able to claim tax relief on travel expenses incurred in home to work travel that is not available to other temporary workers engaged directly by a firm or through assignment-based contracts. 1.3 We have been asked to consider whether this is an unfair arrangement and how HMRC should act to address this difference in treatment, and who might be affected by any action. 1.4 At section 2 below we provide our answers to the questions raised in the Document. Where appropriate we reply to linked questions together. 2 Our responses to the questions 2.1 Question 1: Do you agree with our description of an OAC? Yes, we do agree with the description. 2.2 Question 2: Do you agree with our description of how OACs are used; are there variations which we haven t covered here? We do agree with the description of how OACs are being used. However, we also believe that there are cases where temporary workers are being effectively given no option but to enter into an OAC by the employment business. Registered in England and Wales Registered Office: 1st Floor, Artillery House, Artillery Row, London SW1P 1RT A company limited by guarantee: Number Registered as a charity: Number VAT Registration: Number

2 2.3 Question 3: Do you agree with our description of why OACs are used? What is the main motivation for using an OAC? Are there any other reasons not described here? We believe that the greatest motivation for using OACs is coming from the providers of the contracts, in the ability to avoid tax and National Insurance contributions (NIC). As noted at 2.2, we understand that some temporary workers are being given no option but to enter into an OAC and other temporary workers are just trying to get work so are willing to enter into these contracts and probably, in the vast majority of cases, do not appreciate the consequences of what they have entered into. We fully agree that there are temporary workers employed under OACs who are paying more in fees to the umbrella company than they are getting in tax relief. 2.4 Question 4: On which of these reasons would you place most weight in explaining the recent increase in the use of OACs We have no contemporaneous evidence on which to rely in answering this question, but our general feeling is that the reason for the increase is simply the umbrella companies using the tax treatment of travel and subsistence expenses under OACs as a business opportunity to market this to temporary workers and charge a fee for this service. It then of course snowballs as similar businesses feel that they must also offer this service to remain competitive. We do not believe this is something for which temporary workers have themselves driven the demand. More that this is the environment in which they have found themselves seeking employment. 2.5 Question 5: Do you have any other comments? For example, do stakeholders agree that it is unfair that workers engaged through OACs with employment intermediaries get access to travel and subsistence relief whilst others in similar circumstances don t? We do agree that for workers engaged under OACs to obtain tax relief for home to work travel when employees in more conventional arrangements cannot obtain this tax relief is totally unfair and action ought to be taken to level the playing field. 2.6 Question 6: Do you have any evidence on the extent and usage of OACs by employment businesses? Question 7: Do you have any further evidence of recent trends in the use of OACs? Question 8: Do these differ between umbrella companies and employment businesses? The ATT does not have the evidence base to provide any commentary here. 2.7 Question 9: Do you expect the prevalence of OACs to increase in the near future? Yes, we do expect the prevalence of OACs to increase in the future, especially since many businesses have moved towards more short-term employment assignments as a way of controlling costs and only employing people for the exact time periods that they are required. P/ATTTSG/Submissions/2015 2

3 The labour market is also more flexible than it has ever been and this is only likely to continue. If the tax treatment of travel and subsistence expenses as a result of working under an OAC is left unchanged then they will only become all the more attractive. 2.8 Question 10: Which income groups do you expect will be the greatest users of OACs in the future? We believe that it will be the lower paid income groups who will become the greatest users of OACs in the future, but only due to the fact that OAC working arrangements will be the majority of what they are offered and in order to find work they will end up having to accept an OAC contract. This is the way the market has shifted, from previously professional high paid contractors to the general temporary worker population, the majority of whom are lower paid. 2.9 Question 11: Do you have any evidence on the extent of any competitive distortions created by the misuse of the tax rules through OACs and other schemes noted in this document? We have no evidence but we believe that there are distortions created and more businesses feel obliged to offer OACs in order to offer the tax relief they afford just to stay commercial and competitive. If the tax treatment did not exist then OACs would go back to existing purely for the contractual benefits they offer temporary employees and not the advantageous tax treatment they afford. This would help to correct the market and allow businesses who have only gone down this route to stay competitive to opt out of using OACs Question 12: Do stakeholders agree there is a strong case for the government legislating to restrict tax relief for travel and subsistence in these circumstances? Yes, we agree that some form of action should be taken Question 13: Do you have evidence on the likely impact of option 1? Do you think any particular sectors will be affected more than others? Question 14: Do you have any evidence on the likely impact of option 2? Do you think any particular sectors will be affected more than others? We do not have any evidence to offer, but we favour option 2 as providing the appropriate solution. Option 1 has the correct intentions but we believe that to bring this into action will require much consideration of the rules that currently exist to allow tax relief for genuine cases where an employee is seconded to a temporary workplace and also genuine cases where a Personal Service Company (PSC) worker is entitled to tax relief on his travel and subsistence between home and a place that worker is sent to work. In our opinion, option 2 is the cleaner solution in that it targets the exact problem the fact that OACs currently provide a preferential tax treatment for home to work travel by giving rise to a series of temporary employments under a permanent contract. P/ATTTSG/Submissions/2015 3

4 Option 2 would allow this particular issue to be addressed and would avoid anyone else, such as PSC workers, from being affected. We are sure it will make OACs less attractive but where the motivation to use an OAC is to confer employee rights, then making the proposed change under option 2 should not alter this Question 15: Are there particular groups of people who will be significantly worse off if tax relief was restricted? If option 2 is chosen then only those cases where OACs are being used to allow tax relief on home to work travel should be affected. There will be some employees who find their disposable income affected in that they now have to bear the cost of their travel from home to work and that may initially be problematic for these people. Ultimately, though, they have been enjoying a tax advantage they should not have had and if the tax system is to be fair, this cannot be allowed to continue. It may affect a temporary worker s decision to accept a job if the travel costs are excessive, but this is of course a decision every worker employed in a conventional manner has to make when accepting a job and we do not think there should be any exception created for someone working under an OAC. For someone who is genuinely seconded by their employer to a temporary workplace then, yes, it is correct to assist with meeting the costs of that journey by allowing tax relief. Ultimately, the result may be that some temporary workers affected by a change in the tax relief rules under OACs may need to claim more in the way of tax credits or universal credits. HMRC and the Department for Work and Pensions (DWP) would need to bear this potential consequence in mind, particularly in the case of universal credits where job coaches will be assessing a claimant s ability to obtain gainful employment Question 16: Are there examples of where this may affect cases where it is fair that tax relief should apply? If option 2 is chosen then we do not believe there will be cases affected where tax relief should apply as this option specifically targets workers engaged under OACs Question 17: Do you think the removal of relief for travel expenses under option1 should be extended to PSCs? Please see our responses above at 2.11 and Question 18: Do you have any other suggestions, including broad based T&S reform as part of the T&S review announced at Budget 2014, for how the identified unfairness could be removed? We do believe that the current complexities in determining employment status have been taken advantage of by certain organisations in coming up with various schemes and hope that the outcome of the two separate reviews being undertaken by BIS and the OTS will simplify this P/ATTTSG/Submissions/2015 4

5 area so that employees can better understand the circumstances and consequences of their employment arrangements. A general simplification of the travel and subsistence rules and a move towards aligning these for employed and self-employed people would also assist. 3 Summary 3.1 The ATT agree that the ability for one sector of employees to obtain tax relief on home to work travel whilst others cannot, simply because of a technicality in how OACs are viewed, should not be allowed to continue. However, we believe that the way to tackle the problem is by a specific targeting of the issue in point i.e. the way OAC contracts are allowed to give rise to a particular type of employment that allows tax relief to be given, as if the employee is constantly engaged as a temporary worker sent to a temporary workplaces for less than 24 months, when in reality they work at the end client s premises on a day-to-day basis a series of permanent workplaces. We believe a specific targeted approach ought to be enough and is preferential to introducing new legislation that could affect other scenarios which are not the purpose of the measure, or involve additional work by HMRC and Treasury officers to ensure that the new measure do not affect any other scenarios other than the one in question. There will always be the argument that a specific targeted measure may close down the issues with OACs but cannot prevent other structures taking their place. This is true. However, we argue that HMRC have in recent years been given a raft of measures and powers to enable them to tackle avoidance and aggressive tax planning, from GAAR to DOTAS and High Risk Promoters legislation. We would urge HMRC to use the powers conferred by these sections of the legislation to tackle any new structures that should come forth rather than resorting to introducing more and more targeted anti-avoidance legislation, which is always at risk of creating unintended consequences and affecting taxpayers who were not the subject of HMRC s original concern. 3.2 Contact details: Should you wish to discuss any aspect of these comments, please contact our relevant Technical Officer, Alison Ward, on or at award@att.org.uk. Yours sincerely Paul Hill Chairman, ATT Technical Steering Group P/ATTTSG/Submissions/2015 5

6 4 Note 4.1 The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible. Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia. The Association has over 7,500 members and Fellows together with over 5,000 students. Members and Fellows use the practising title of 'Taxation Technician' or Taxation Technician (Fellow) and the designatory letters 'ATT' and 'ATT (Fellow)' respectively. P/ATTTSG/Submissions/2015 6