The Future of Travel & Subsistence Schemes

The Future of Travel & Subsistence SchemesHosted by Rullion Limited4th February 2016 Manchester United Football Stadium

In partnership with:

Welcome

WELCOME

AGENDA

Agenda09.30 – 10.00 Registration & Refreshments

10.00 – 10.15 Welcome & Introductions

10.15 – 10.30 “What’s it all about?” Paul Chamberlain, Partner, Head of Employment and Pensions Brabners LLP

10.30 – 10.45 “The Future for Umbrella Companies”Julian Ball, Legal Director – Paystream

10.45 – 11.00 “What’s on the Horizon?”Tom Hadley, Director of Policy and Professional Services Recruitment & Employment Confederation (REC)

11.00 – 11.50 Panel Q&A – Panellists:Andrew Moore, Associate – Eversheds LLPDamian Houghton, Founder & Owner - Danbro Paul Chamberlain, Partner, Head of Employment & Pensions – Brabners LLPJulian Ball, Legal Director – PaystreamTom Hadley, Director of Policy and Professional Services – REC

11.50 – 12.00 Next Steps

12.00 – 12.40 Lunch & Networking

12.40 – 13.50 Stadium Tour (Optional)

14.00 Close

Paul Chamberlain

BRABNERS

The Future of Travel and Subsistence Schemes

Paul Chamberlain- Partner, Head of Employment

Thursday 4 February 2016

What is it all about?

What problems are the Revenue trying to resolve?

Current Travel and Subsistence arrangements:

•Relief is available for travel in the performance of a worker’s duties or for travel between a worker’s home and a ‘temporary workplace’

•Intermediaries employ workers on an overarching contract on a single set of terms and conditions whilst they work in multiple locations for different engagers. The worker is treated as being in single continuing employment. The workplaces will often be temporary

•A worker employed in this manner is eligible for tax relief on their home to work travel and subsistence expenses that a direct employee cannot access


• Increasing numbers of workers are eligible for relief

• Use now exceeds the original intention of Parliament

• Estimated taxpayer cost of £265 million

• Market distortions and unintended tax advantages


The Consultation Exercise

Consultation Period (8 July 2015- 30 September 2015)

“If a worker is:

•Supplying personal services;•Working through an employment intermediary, i.e. an umbrella company, a personal service company or in certain circumstances an employment business;•Subject to (or to the right of) the supervision, direction or control of any person in the manner in which they provide their services;

then each engagement will be treated as a separate employment for purposes of tax relief for travel and subsistence (T&S).”

HMRC (Consultation Document 8 July 2015)


Employment Intermediaries

•Employment Intermediaries will be defined as:

•An entity- including a company, partnership or an individual;

•Which interposes itself between a worker and an engager, as part of an arrangement for the worker to provide services to the engager; and,

•Substantially in the supply of labour services


Supervision, Direction or Control

Any party to the arrangements must have (or have the right of) supervision, direction or control over the manner in which the worker provides their services

•The worker can be subject to supervision direction or control from any person for the changes to apply•The right of supervision, direction or control does not need to be exercised in practice for the changes to apply

To determine supervision, direction or control HMRC will consider the worker’s arrangements overall, including how work is carried out in practice. It will not be sufficient for the terms of engagement to imply a lack of supervision



“Although the government recognises that supervision, direction or control is a subjective test, and that a minority of engagements will be hard to categorise, it believes that clear guidance should help ensure businesses and individuals are able to understand when a worker is under the right of supervision, direction or control in the manner they undertake their work. There is already a substantial amount of case law in this area, which will further support HMRC’s guidance and the understanding of these terms. HMRC will review the existing guidance on supervision, direction or control and issue guidance for this measure before it comes into force in 2016.

The government is also confident that its current definition of the terms will capture those whose work is akin to employees, without affecting those who are akin to the self-employed. The government considers that with clear guidance on these definitions, it will be easier to understand where someone is not under supervision, direction or control.

It is important to note that the supervision, direction or control test being proposed for use by employment intermediaries in relation to these changes, will only be relevant for deciding eligibility for relief on travel and subsistence for home to work travel. It will not impact on a worker’s employment status, or wider employment rights.”

HMRC (Summary of Responses 9 December 2015)



Example 1- Working through an employment intermediary following the proposed changes

An independent retailer requires their own website to market and sell their products online. The proprietor contracts with an employment agency to supply them with an IT consultant to design, build and release the website on-line.

An IT consultant is sent along to meet the proprietor, who explains their requirements. Having no expertise in IT, the proprietor gives the IT consultant photographs of the product range and the price list and tells the IT consultant they have a free reign to undertake the work as they choose. The IT consultant works at the retailer’s premises during the engagement and completes the job after which the engagement ceases.

In this example, the proprietor had no right of supervision, direction or control over the manner in which the IT consultant provided their services. As such, the IT consultant is able to claim tax free travel and subsistence expenses for their travelling between home and the retailer’s premises and for lunch costs, regardless of whether they work through an Employment Intermediary, including a PSC or an Umbrella Company.



Example 2 – Working through an employment intermediary following the proposed changes

A local authority need an IT consultant to provide 4 months cover for a permanent employee who is on maternity leave. The local authority contract with an employment agency to send along an IT consultant to provide the cover.

The job entails the IT consultant working within the local authorities own IT department alongside permanent employees, undertaking the same duties. Throughout the engagement the manager of the IT Department assigns the work to the IT consultant and gives instructions as to how that work must be done. The IT manager monitors the IT consultant’s work, as they do with the permanent employees work.

In this example the IT manager had a right to supervise, direct and control the manner in which the IT consultant provided their services and that right was exercised. Therefore, the IT consultant is not able to claim tax free travel and subsistence expenses for travel between home and the local authority’s premises and lunch costs. The local authority’s premises is regarded as the IT consultant’s permanent workplace for the duration of the engagement

Where does the liability sit?

“Having considered stakeholder views, the government believes the most pragmatic and proportionate approach to improving compliance is the option raised during consultation roundtable events. This option transfers, jointly and severally, any debt arising from the deliberate misapplication of the rules from the employment intermediary (the business employing the worker) to its director(s). The transfer of debt would only be applied where it could be shown that the employment intermediary had knowing failed to apply the rules correctly, when they had been told by the engager that relief on travel and subsistence should not be available.

In addition, a second transfer of liability will also be introduced, moving debt to another relevant party where they have provided a fraudulent document that misled the employment intermediary so that relief on travel and subsistence expenses was allowed.”

HMRC (Summary of Responses 9 December 2015)

Where does the liability sit?

• It was expected that the draft legislation would include a principle for transfer of debt to the agency.

• However, a transfer of debt principle was not included. It is possible that this could change.

In what circumstances can T&S tax relief still apply?• Personal Service Company (PSC) workers who are outside of the

IR35 legislation (ss48-61 ITEPA) (If T&S conditions are met) • PSC workers who are inside IR35, but are not under supervision,

direction or control in the manner that their work is undertaken (and are therefore akin to those who are self-employed)

• Therefore consider: 1- IR35, 2- supervision, direction or control

Travel and Subsistence

Timetable

•Consultation period (8 July- 30 September 2015)

•Autumn Statement (25 November 2015)

•Summary of proposals published 9 December 2015

•Draft legislation published 9 December 2015

•Expected implementation on 6 April 2016 through Finance Bill 2016

Any Questions?

Website: www.brabners.com

Email: [email protected]

Julian Ball

PAYSTREAM

PayStream - The Accountancy Service PayStream - The Accountancy Service ProviderProvider

T&S changes04.02.16

Working with Rullion

• PayStream have an 8 year relationship with Rullion• 88 umbrella and 173 PSC workers• Dedicated account managers – Rob Gillman (North), Chris Fahey (Scotland),

Hannah Mollison (South), Miguel Cunha (South)• 79% of umbrella workers claim expenses

All Rullion contractors that completed our Customer Survey advised:

• that they find the PSC Dashboard and income statements useful;• that PayStream is better than other umbrella providers they have used;• that they are satisfied with our Customer Care Team;• that on a scale of 0 – 10, when asked how likely they were to recommend

PayStream to a friend or colleague, they scored PayStream 9 for both PSC and Umbrella.

Potential Services FY16/17• No expense umbrella - works, retains continuity of employment but margins lower• Traditional umbrella – works but SDC and Salary sacrifice rules will apply

o Fixed expense umbrella – does not breach salary sacrifice BUT need evidence no SDC. Also need to justify size of claim to HMRC.

o Mileage only umbrella – does not breach salary sacrifice BUT need evidence no SDC. Can make claim for mileage but will have to do a tax return to reclaim subsistence.

• PSC – IR35 applies• PSC Deemed – option for career contractors deemed to be inside of IR35

• CIS – if no SDC

• PayStream Plus – full suite of back office accountancy and payroll services

Why aren’t PSCs affected?

• PSCs will be excluded from the SDC test – “too complicated to have 2 tests” - IR35 will apply to T&S expenses

• Inside IR35 - no T&S allowed; Outside IR35 - T&S allowed

• Liability remains with PSC (because PSC intermediary)

• PSCs will continue in their current form although there will be an increased focus on IR35 reviews

• In-house IR35 team advantageous – we offer 90 reviews per week

• Those operating "inside IR35" PSC solutions will need to review their expenses policies

Will there be a switch to PSC?

Maybe but consider:•Is it right for worker? Rate (£16+), job title, contract length, risk appetite, IR35•Anti- avoidance provisions – S339A (5) – no regard to arrangements to get round legislation•Benefits of umbrella - Continuous employment, statutory benefits, insurance, non-T&S expenses (mobile), Independent Financial Advisor access, advances.•Reputational risk – employee today self-employed tomorrow•MSC risk – mitigated if accountant not “involved”

Benefits•Reduces AWR risk•T&S risk with PSC (unless scheme)•Increases takes home pay

Communication•Needs careful handling

NOTE: we are not advocating wholesale switch

Should we allow expenses to be processed?

• It will increase workers’ pay and retain mobility - £30/wk net difference

• To be robust we will need to confirm no SDC

• Simple questionnaire could be used

• Evidence must be saved

• If fraudulent answers are given it will lead to potential liability for agencies/clients

• HMRC to provide examples of what / what is not caught – April 2016

Could a “Statement of Work” Model work?

• Provide a service not a man so new legislation wouldn’t apply - no “personal service”

• Can work where defined deliverables

• T&S would still be allowed

• Contracts would need to change – all need to be on same page

• Not a solution for every worker

• Could possibly subcontract to PSCs or sole traders in this model

Pay difference

Communication plan• Historical – email to contractors and article on website re potential changes

• Press/external – articles submitted to RI; PRISM releases; submissions to MPs

• Next communication – end Feb planned; reminder in March – note final legislation to be published 16th March

• Partnership – need to understand Rullion and clients’ position so no conflicting messages

Tom Hadley

REC

Tom Hadley, Director of Policy & Professional Services, REC

www.rec.uk.comRecruitment and Employment Confederation

Jobs transform lives, which is why we are building the best recruitment industry in the world.

3,500 members covering 19 specialist sector groupsAll members must sign up to the Code of Professional Practice and pass mandatory compliance test Individuals can become members of the Institute of Recruitment Professionals (IRP)

We are… The professional body for the UK recruitment industry







Who we work with…

http://www.google.co.uk/url?sa=i&rct=j&q=eurociett+logo&source=images&cd=&cad=rja&docid=R1jng02DQ7mv4M&tbnid=vZyUw9VIghp_DM:&ved=0CAUQjRw&url=http://www.employmentweek.com/cms.php?page=68&ei=nUQCUoGwGKXb0QXejoCwAQ&bvm=bv.50310824,d.ZG4&psig=AFQjCNGjSxkodS6xfQXjvnLwffoi-9oYKw&ust=1375966684367615

http://www.tuc.org.uk/







1 –The jobs market context





• Number of placements have increased for 38 consecutive months (Report on Jobs);

• Number of shortage roles has gone from 31 in Jan 2013 to 73;

• Demand is strong across most sectors and regions;

• Strong demand is driving salary growth.







2 –The political context



The political context…

• Review of T&S schemes is part of a broader focus on tax avoidance

• Latent suspicions of different (i.e. non permanent) ways of working



The political context…



Not just a UK issue…



Not just a UK issue…



So, where are we now?

• Over the last 10 years there has been a proliferation of workers using T&S schemes through umbrella companies;

• HMRC have estimated to cost the exchequer to be somewhere around £265 million;

• As part of wider measures to tackle tax avoidance and level the playing field for tax and NICs to correct market distortion the Chancellor announced a crackdown on T&S Tax Relief in the Autumn Statement in 2014 leading to an initial discussion document that closed in Feb 2015;

• This found that many temporary workers were using T&S tax relief for home to work commuting which is prohibited in tax law;

• This lead to the final consultation to introduce the test of supervision, direction and control and to the subsequent draft legalisation.



3 –The practical implications



Practical implications …

• If the individual works “outside” IR35 there is no need to apply the SDC test (i.e. can claim T&S expenses relief). IR35 is the responsibility of the intermediary (i.e. the PSC or partnership) so risk here is incorrect application of IR35 rules.

• There will be a review of IR35 this year, with new rules potentially in place by April 2017. We will need to keep a close on developments here and influence where possible.

• Will we see a mass migration into PSCs or other intermediary types? How are workers responding to the changes?

• What due diligence should the employment business do on PSCs, partnerships etc.?



Practical implications …

• Implications for different sectors - e.g. mobile workers such as district nurses, care workers, drivers – no T&S relief for journey from home to permanent workplace (and back) but relief is available for assignment to assignment journeys. (Question to HMRC: what about those workers who do not travel to a permanent workplace each morning but start (and finish) at a different location each day?)

• With regards to liability, what is a fraudulent document? (Criminal intent versus misleading or simply wrong).

• In complex supply chains, which employment intermediary can liability transfer to and what due diligence should the employment business do?

• SDC not defined in legislation so we rely on guidance. We have asked for guidance to be improved and merged. We are submitting scenarios to HMRC.



Issues for our members

• Move temporary workers back onto employment business’s own payroll?

• Continue relationships with existing umbrella company suppliers?

• Alternative supply models – how else can they supply temporary workers?

• Members must be aware of “arrangements” and general anti-avoidance rule.

• Potential impact on pay rates?



Implications for supply chains



I - What’s going on?

Challenging preconceptions …



Working together to implement changes



Charter Principles

1. Our recruitment procedures are fair, legal and ethical2. We will exercise recruitment good practice despite mode of employment 3. The candidate experience delivered is of a high standard 4. Flexible working arrangements and adaptive working packages 5. Those managing and delivering the recruitment process having undertaken

any relevant training/qualification 6. External recruitment providers are signed up to industry Codes of Practice 7. Recruitment good practice is ensured throughout the supply chain 8. Recruitment procedures help to address the challenge of youth

unemployment9. Recruitment procedures are regularly reviewed and feedback sought from

candidates 10. That we ensure we keep abreast of trends and recruitment practices







Final thoughts…

Questions & Answers

Q&A

Paul ChamberlainBrabners LLP

Andrew MooreEversheds

Tom HadleyREC

Julian BallPaystream

Damien BroughtonDanbro

NEXT STEPS

Rullion meet/discuss

with Customers

NEXT STEPS

Rullion meet/discuss

with Umbrella companies

Develop communicatio

n plan

Rullion inform affected

contractors

Umbrella providers engage with contractors

Implement appropriate solution for contractor

GO LIVE6th April 2016

Networking & Lunch

LUNCH

Recruiting & HR

The Future of Travel & Subsistence Schemes