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Temporary workers get relief for travel and subsistence expenses

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HMRC are currently requesting the views from any interested parties to comment on the topic of relief for expenses for temporary workers. The full document with contact details can be found by using the link below. Closing date is 10 February 2015. 

The Autumn Statement 2014 announced that the government would review the use of overarching contracts of employment (OAC) by employment intermediaries in the temporary labour market to take advantage of the rules for travel and subsistence expenses. These arrangements mean that some people are able to benefit from tax relief on home to work travel expenses that is not generally available to others. 

Alongside this review, following the Office of Tax Simplification (OTS) review of benefits and expenses, the government is also simplifying the rules for employers who wish to pay or reimburse qualifying expenses to their employees. As announced at Autumn Statement 2014, from 6 April 2016 employers will be able to pay or reimburse certain expenses without being required to report these payments to HMRC or apply for an agreement not to deduct tax from these payments in advance (known as a ‘dispensation’). However, the exemption will not apply to expenses paid by the employer through a salary sacrifice scheme. This will prevent businesses engaging in these schemes to take advantage of the travel and subsistence rules to avoid paying the full amount of employer National Insurance on their workers’ pay.

What is an overarching contract of employment?

OACs are a legitimate form of employment contract used by some employment businesses and umbrella companies to place temporary workers on multiple separate work placements, but on terms and conditions of a single permanent employment. The employment business or umbrella company becomes the employer of the temporary worker. However, their premises are not the employees’ normal place of work, and they are not the organisation which directs the employee in their day to day tasks. This contractual arrangement enables individuals to access tax relief on travel costs and daily subsistence costs. 

This is contrasted with the position under direct contracts of employment – temporary or permanent – where the employer provides the temporary employee’s normal place of work, and the employer directs the employee in their day to day tasks. 

For both direct contracts of employment and assignment based temporary worker contracts, tax relief isn’t generally available for travel between home and work. The terms and conditions of an OAC generate the difference in treatment with individuals on more common employment business contracts. OACs can provide for ongoing mutual obligations between the individual and the employment business or umbrella company between work placements. They must also relate to payment for work personally performed by the individual. On the strength of these obligations being included in the OAC, the individual is treated as having an ongoing employment with the employment intermediary rather than a series of separate engagements

As such, where an individual is engaged on an OAC, they are treated as having a permanent base location (usually at the address of the umbrella company or employment business engaging them). Each separate work placement they undertake is then treated as part of their permanent employment but taking place at a temporary location. 

Generally tax and NICs relief is not available for the travel and subsistence expenses incurred by employees on travel between their home and their normal place of work as noted above. However an employee can get tax and NICs relief if the place they are travelling to is a “temporary workplace. 

Broadly speaking, a temporary workplace is somewhere that the employee must go to in order to perform a task of limited duration, provided that they do not expect to be at the workplace for more than 24 months. If an employee is expecting to be at a workplace for the whole of their employment (even if that is less than 24 months) then it is not classed as a temporary workplace and so no tax or NICs relief is available for travel between the employee’s home and that workplace. This would normally include employment business workers who have a separate contract for each distinct engagement. 

By creating a single employment relationship spanning all of the engagements, OACs stop these rules applying, meaning that each workplace is treated as a temporary workplace provided that the individual expects to be there for less than 24 months. 

Therefore, under certain OACs the individual is entitled to claim tax relief on their travel and subsistence expenses from their home to each temporary place of work. This tax relief is not available to a temporary agency worker engaged directly by an employment business, or to those who are directly employed by businesses using their labour. It is an established principle in the tax system that people should not be able to claim travel and subsistence expenses with respect to their regular travel from their home to work; in line with this, ordinary commuting costs incurred by the vast majority of workers are not tax deductible.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/387335/Employment_Intermediaries_-_Temporary_workers___relief_for_travel_and_subsistence_expenses.pdf

As a result of the proposed changes Benchmark Scale Rates which are approved as part of a dispensation, will not be used to calculate an employee’s entitlement to daily subsistence. 

Although SmartPAY currently holds  a HMRC Dispensation we use the facility to implement an ‘Actuals’ model, calculated on actual expenses incurred’, for the subsistence element of any worker’s  claim.  We encourage our Contractors to submit actual subsistence claims and any claims that are made up to the level of our dispensation based on HMRC Benchmark Scale Rates are spot checked for accuracy and legitimacy. 

As in the case of Benchmark Scale Rates employees will still need to be able to justify the level of expenses by retaining receipts. 

Contractors using SmartPAY’s Umbrella Service can rest assured that we work hard to ensure compliancy, accuracy & transparency when processing payroll.

Source: gov.co.uk, SmartPay Limited

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Lynn Cartmell

Lynn has 25 years of experience in Accountancy, Payroll and Management Experience within various Industries and joined Smart Pay in August 2012.

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