Income Tax: employment intermediaries and relief for travel and subsistence
Published 9 December 2015
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Who is likely to be affected
Workers employed through an employment intermediary, such as an umbrella company (a company employing workers and supplying them to business), a personal service company (PSC) or a recruitment agency/employment business.
General description of the measure
Following the introduction of this measure, certain temporary workers will not be able to claim tax relief or a disregard for National Insurance contributions (NICs) on the travel and subsistence expenses they incur on an ordinary commute from home-to-work. The restrictions will apply to workers who are employed through an employment intermediary, such as an umbrella company, or a recruitment agency/employment business and who are supplying personal services (largely supplying their skills or labour) under the supervision, direction or control, of any person, in the manner in which they undertake their role.
Those individuals who supply their services through small limited companies, generally known as PSCs will no longer be able to claim tax relief or a NICs disregard for those contracts where they are required to operate the intermediaries legislation (commonly known as IR35), or they would otherwise be operating IR35 if they weren’t receiving all their remuneration as employment income.
This will bring the treatment of their travel and subsistence in-line with that of other temporary workers and contractors, whilst ensuring that those who are not under supervision, direction or control whilst undertaking their work and who are therefore akin to the self-employed continue to be able to claim relief for their travel and subsistence as before.
Policy objective
The proposals are aimed at preventing workers, engaged through an employment intermediary, and their employers, from benefiting from relief for home-to-work travel expenses. It is an established principle in the UK tax system that people should not be able to claim relief on their regular commute from home-to-work, therefore this relief is not generally available to other workers.
The proposals recognise the different ways individuals are now working and put workers employed through an intermediary on the same terms as other workers, contracted directly, or through an agency contract. This underpins the government’s commitment to ensure the tax system is fair and treats individuals in similar circumstances in the same way.
Background to the measure
At Autumn Statement 2014 the government published a discussion document looking at the issue of employment intermediaries and eligibility for tax and NICs relief on travel and subsistence. Following this, the government announced at March Budget 2015 that it intended to consult on proposals to remove tax relief on what is effectively ordinary commuting, for those working through certain employment intermediaries and under the right of supervision, direction or control of any person, in the manner they undertake their work.
A consultation document ‘Employment Intermediaries and Tax Relief on Travel and Subsistence’ was published at Summer Budget 2015 (8 July) setting out proposals to address these issues and closed on 30 September 2015.
Detailed proposal
Operative date
The measure will have effect on and after 6 April 2016.
Current law
For income tax the current legislation regarding relief for travel expenses is provided for at sections 337 to 339 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). For NICs the current legislation providing for a disregard for travel and subsistence expenses is at paragraph 3, Part 8 of Schedule 3 to 2001 regulations, Social Security (Contributions) Regulations.
These permit a deduction from taxable income and a disregard for earnings for NICs for travel and subsistence expenses incurred for and during travel from home to a temporary workplace.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to restrict access to relief for home to work travel and subsistence where a worker:
- personally provides services to another person
- is employed through an employment intermediary
- is under (the right of) the supervision, direction or control of any person, in the manner in which they undertake their work
Employment intermediary will be defined as a person, other than the worker or the client, who carries on a business (whether or not with a view to profit and whether or not in conjunction with any other business) of supplying labour.
Where the worker is within the charge of the intermediaries legislation this measure will only apply to those contracts where a deemed employment payment is made, or would be made if all the individual’s remuneration was not being taken as employment income. In these circumstances the supervision, direction or control test will not be used.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 |
|---|---|---|---|---|
| - | +155 | +175 | +160 | +145 |
These figures are set out in Table 2.1 of March Budget 2015 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside March Budget 2015.
Economic impact
This measure is not expected to have any significant economic impacts.
This measure may result in small changes to the labour market, including decreases in the use of umbrella companies and increases in the use of other types of employment intermediaries.
Impact on individuals, households and families
It is estimated that the measure will affect around 430,000 individuals employed by umbrella companies and employment agencies over the course of a year.
The precise impact on any individual is difficult to predict as it will depend on the hours worked, rate of pay, level of expenses and (if employed through an umbrella company) the level of the fee charged by the company. Those on low pay could benefit from this measure; particularly if they are claiming few expenses and are still paying a fee.
Equalities impacts
There is no reason to suppose this measure will have a significant or disproportionate impact on groups with legally protected characteristics as recognised in The Equality Act 2010 other than gender as men make up a disproportionately higher number of umbrella company workers.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses and civil society organisations.
Businesses may see a rise in the direct cost of hiring temporary and contract staff through employment intermediaries who are subject to the supervision, direction or control of any party. This rise will bring their costs in line with those employers who are currently taking on temporary workers without the use of employment intermediaries and are not benefitting from tax relief on travel and subsistence.
End engagers will also need to identify whether a worker is under supervision, direction or control (or the right thereof) in the manner they under take their work and will need to agree the process for ensuring this information is passed to the employment intermediary. Most end engagers will only need to take action where a worker is not under supervision, direction or control in the manner they undertake their work. Workers are assumed to be under supervision, direction or control, unless it is shown otherwise. This will not be necessary for those who are engaging a PSC, as the eligibility for relief will be determined based on whether or not the intermediaries legislation (IR35) applies.
Operational impact (£m) HM Revenue and Customs ((HMRC) or other)
This may lead to minor operational changes in HMRC due to changes in the use of employment intermediaries.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Philip Horswill on Telephone: 03000 518361 or email: philip.horswill@hmrc.gsi.gov.uk.