Draft Finance Bill Update – travelling & subsistence rules

The much anticipated draft of the Finance Bill has today been released, containing amongst other things draft clauses relating to the restriction on tax relief on travel and subsistence expenses for workers engaged through intermediaries.

The following documents are relevant:
Employment Intermediaries and Tax Relief for Travel and Subsistence: Summary of Responses to the consultation
• The draft legislation
Explanatory notes to the draft legislation
• The gov.uk guidance on the draft legislation
• HMRC’s draft updates to their internal manuals on the proposed new legislation

Outline of proposals

Most of the following will not come as a surprise to those who have been closely following the development of this consultation over the last months. There are however some changes to the original proposals.

We would stress that this legislation is still in its draft form and is subject to the usual Parliamentary procedures. In particular comments are still invited by HMRC on the legislation, and there are some minor typos in the legislation and the guidance so it is unlikely to be enacted precisely in this form.

In summary:
• New rules to take effect from 6 April 2016.

• Tax relief on travelling and subsistence (“T & S”) expenses are to be restricted where a worker is working via an employment intermediary.

• This is not an outright withdrawal of all T & S relief. The legislation will take effect by cancelling out the effect of any ‘overarching contract’ between a worker and an intermediary; however expenses that do not rely on the overarching effect of such contracts will remain allowable in the normal way. We covered various scenarios on our update seminars recently where expenses would still be allowable, and this is an important first consideration when assessing the impact of this legislation.

• Where the intermediary is a PSC, the proposal is for the legislation to take effect only if IR35 applies, i.e. the worker is a ‘disguised employee’. This appears to be the stated aim of the Summary of Responses document; however it is not clear that this has been achieved in the draft legislation, nor is it clear from the explanatory notes, the gov.uk guidance or the HMRC draft manual updates. This may be because this was a last minute change in objective. We expect further guidance and clarity with the development of this legislation.

• For all other intermediaries the legislation will take effect where the manner of the work is subject to, or to the right of supervision, direction or control by any person (“the SDC test”). As with the Onshore Intermediaries rules, there is a burden of proof on the party liable for PAYE.

• There are new debt transfer proposals.

• Broadly speaking, where the intermediary receives a fraudulent document relating to the SDC test then the PAYE liability on expenses will transfer to the party who provided the fraudulent document. HMRC can collect the debt from this third party or, where it is a company, its directors personally.

• There are also new debt transfer provisions to directors of intermediaries if PAYE is not operated correctly on expenses affected by these new rules and the intermediary has not actually collected any evidence on the SDC test.

• Finally, in PSC cases, there is a wide general provision transferring the PAYE debt to the director(s) where the new rules are not operated correctly.

• Notably the legislation includes a power for HMRC to extend the debt transfer rules to “officers” of the company, which is defined as including managers, secretaries or other similar officers but HMRC do not appear to have used this power in the specific debt transfer rules as yet.

Published: 12.09.15 - Posted In: Latest News