Removal of T&S Relief

You are probably aware that the government proposes to remove the travel and subsistence benefit from temporary workers, employed via an intermediary and subject to, [or the right of], Supervision Direction and Control. Despite universal opposition, HMRC are ploughing ahead with the legislation and, while not yet finalised, it seems that it will be enacted on 6th April 2016 with no delay and little amendment.
 
We have held off making contact with you while we firstly waited for the draft legislation and secondly, while we took advice. This legislation is the most challenging the temporary labour market has ever faced and could drive up end user costs or reduce worker take home pay. The reality however is that it may not be as draconian as the first reading suggests. Many workers should be wholly unaffected and those that are can be offered alternative methods of engagement to mitigate any increase in labour costs.
 
Our purpose at this point is to outline what the new legislation means, the impact it will have and the various solutions designed to ensure that end user costs do not increase and worker pay is protected and preserved.
 
Who is affected?
 
Temporary workers engaged via an intermediary, [agency, payroll business and certain other structures] who are subject to SDC. These workers will, until March 2016, be able to offset legitimate travel and subsistence expenses against their income and be paid these free of tax an NI. To an average worker the take home pay value of these expenses is £40 per week. That is a very significant loss to any worker and could cause significant unrest.
 
What is SDC?
 
When the consultation on the legislation was published it appeared at first sight that every worker was affected. Every person at every level is subject to control by some higher authority, so how could they not be affected?  Thankfully that is not the case. The potentially very wide definition of SDC is not what HMRC intended and to understand the legislation we need to focus on HOW the work is done. If the physical activity being performed by the worker at the time he does it is not subject to supervision and control, then the legislation does not apply.
 
The precise meaning of SDC will not be known for many months, possibly many years, and ultimately it will be up to learned judges to interpret. Herein lies the major problem with the legislation. The meaning of SDC is highly subjective and it is clear that HMRC are neither clear what they believe it means or have an ability to clarify their position in the "real world" guidance they have published.
 
The fact is that the temporary labour market, its end users, employment agencies and payroll businesses, must decide what their interpretation is and position themselves accordingly. Different businesses will take different positions and unfortunately there will be inconsistency and the "level playing field" the government tried to create will simply not exist.
 
Who is not affected

  • Workers engaged on a simple PAYE basis who were never entitled to T&S Expenses
  • Workers who, though entitled to the benefits, never claim expenses
  • Workers who are not subject to SDC, there is no simple test but broadly skilled workers
  • Workers who travel in the performance of their duties. Individuals who attend multiple sites in the course of an engagement with an end user are still entitled to the deduction
 
What is the Bar 2 Strategy to deal with the legislation?
 
Bar 2 is in the fortunate position of having had face to face meetings with HMRC and communicated extensively on the meaning and interpretation of SDC. Our position is that we are happy that we understand what the legislation attempts to do and we will apply it to those affected.
 
Underlying everything, Bar 2 will place workers in structures that deliver the greatest benefit to our clients and our workers and our intention is that no party is affected or, if there is any impact, it is as low as possible.
 
We will have no choice but to expand our data collection activity asking workers more, and more detailed questions, regarding their skills, qualifications and experience but we do so in order that we can reasonably categorise as many workers as possible correctly. We will need your support in this as many workers will perceive this to be intrusive.
 
Bar 2 will offer
  • CIS, for skilled construction workers not subject to SDC
  • Sole Trader, for skilled non-construction workers not subject to SDC
  • Umbrella, with expense deductions, for the above groups
  • Umbrella, without expenses, for workers not currently claiming expenses
  • A new form of Umbrella, [details of which we will release when we have completed the structuring], which delivers increased take home pay to the worker even without expense deductions
  • We will be partnering with an accounting firm to deliver PSC sevices to those workers who express this preference
  • SEP, our hybrid model, where the worker is self-employed for employment law purposes but employed for tax purposes, a product with limited application going forward but useful in   some circumstances
 
It is a fact that Bar 2 will be able to offer every worker a mechanism which means the effect on his or her take home pay will be minimized or even improved.
 
Bar 2 is already in the process of amending systems and processes and introducing our new Umbrella offering and as we complete these changes we will let you have further details. In the meantime we would welcome any opportunity to discuss the legislation with you and deal with any particular questions you may have.

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