The Friends and Family Allowance is being effectively removed, no longer to be part of existing claims dispensations on review and barred altogether from new dispensations, HMRC has announced. After a review by the tax office, officials in a recent online briefing said of the FFA that they found it had ‘no legal basis for giving tax relief’.

Effective from April 6, the initiative will eliminate what advisors have perceived to be the most commonly claimed tax-free expenses by those who do not really incur any costs, and is intended to tackle abuse of expenses in umbrella companies by withdrawing the allowance for staff who stay overnight with friends or family.

The FFA will also not receive a scale rate in HMRC’s new benchmark scheme, which brings in “advisory” tax-free rates for employers to reimburse subsistence expenses for their staff. According to Bauer & Cottrell, if the scheme’s rules are applied consistently, there should be no difference between net pay rates outside the fee each umbrella company charges for its services.

SJD Accountancy’s Simon Dolan told Contractor UK: “This is the start of standardisation across umbrella companies which is fantastic news, as it will remove the ridiculous and damaging claims, like ‘increase your take home pay by using umbrella ‘x.’ ”

Umbrella companies are now expected to develop their marketing promotions beyond being “HMRC Compliant”, which should cause them to focus more on what Dolan called “differentiation by service, which can only benefit the contractor”.

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