The Government has acted to close what a number of Umbrella Companies had seen as a loophole that may have permitted the contracting professionals on their books to continue to claim tax relief on travel and subsistence (T&S) expenses.
Umbrella Company trade body PRISM had campaigned vigorously to force a rethink on the controversial tax relief shutdown, but ultimately to no avail. Its CEO, Crawford Temple, said that some Umbrellas had subsequently taken the view that, so long as the contracting worker was not named, he or she would not be subject to supervision, direction or control (SDC) and would therefore be entitled to go on claiming T&S relief, despite the implementation last week of the new legislation.
However, newly published guidance from HMRC, he said, has made it very apparent that this is not the case.
Temple said: “The Revenue was aware that some Umbrellas saw this as a loophole and have moved to clarify the position. I have heard some people say there is no change and they can carry on as before, but that isn’t the case.
“The supervision, direction, or supervision test is applied to the person who actually provides the service; whether they are named on the contract is irrelevant.”
Meanwhile, Patrick Ford, partner at the business law firm Squire Patton Boggs, said that although the new guidance was welcome, it may still place intermediaries such as recruiters and their advisers in a confusing position as they struggle to determine whether the new SDC rules apply for sure in certain situations.
He invited additional clarification because the existing guidance is of limited help, giving only very obvious and clear-cut practical examples concerning the meaning of SDC but omitting the “more nuanced situations which often need to be considered.”
The new guidelines, he said, provide useful clarification on when an individual contracting professional will be personally providing services as well as on who will be liable in conditions when several clients are involved in the contractual chain.
While the additional examples concerning SDC in the new guidelines are helpful, Ford added, despite them, the SDC test remains “vague and wide-ranging.”
He concluded: “In all but the clearest cases a cautious approach (i.e. that there is SDC) is likely to be the recommended course of action.”
It remains to be seen what the impact of the new rules will be. Some are predicting that many sought-after Umbrella Company Employees will restrict the businesses they serve to those in their immediate vicinity, reluctant to incur costly travel and subsistence expenses for the longer distances they had willingly travelled prior to the rule change.