Fairer Tax Relief Campaign – Impact of rules from 6th April 2016

Tax rules that apply on 6th April 2016, when combined with changes to the agency tax rules that applied from 6th April 2014 (HMRC refers to the changes as the false self-employment rules) largely preclude an employment intermediary from applying any tax relief from previously allowable home to work travel and subsistence expenses (qualifying tax relief).

Post 6th April 2016 the default will be that qualifying tax relief will only apply where an employment intermediary (the party who pays the worker such as the supplying agency or an umbrella company) (EI) can show there is no actual, or right to, supervision direction or control by anyone as to the manner of the provision of the workers services (SDCM).

Also schemes under which the amount paid to an employed worker changes with each payment because qualifying expenses are taken into account, a method regularly used by umbrella companies for example, are to be treated as salary sacrifice schemes that prohibit the qualifying tax relief. At the same time where an EI can show to HMRC that there is no SDCM may pay their agency workers on a gross basis (the agency worker having to account through their own annual tax return as if ‘self-employed’) because the agency tax rules no longer apply. In addition those operating through companies remain entitled to some expenses reliefs under the tax rules known as IR35. Thus designated ‘self-employed’ and company contractors are outside of the rules.

Accordingly higher skilled and thus possibly higher paid agency workers not subject to SDCM may obtain tax reliefs that may not be available to lower skilled and thus possibly lower paid agency workers despite travel to work cost being the same for all, leading to inequality and class prejudice that is patently unfair. At the same time the rules include complex compliance and reporting requirements whilst also making third parties and directors liable where the rules are misapplied. creates unnecessary risk and introduces unnecessary complications into the supply process, in turn pushing up compliance cost, the cost of supply and rendering supply option less attractive.

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Why are the tax changes unfair?

Campaign proposal and benefits

Details of proposed tax relief

Impact of rules from 6th April 2016