Some ideas on an alternative tax relief approach

As we all now know, there
was little information within the Autumn Statement ‘blue book’ as to how HMRC
will respond to the recent consultation on reforming tax reliefs on travel and
subsistence expenses or how PSCs are to be treated following rumours that PSC
status will be removed after a short period on contract.

This means that employment
intermediaries, umbrella companies and agencies supplying individuals who are
currently benefitting will to have to wait until draft legislation is published
on 9 December 2015 before it is clear what action, if any, can be taken and how
any new regime would work.

Adrian Marlowe, Chairman
of the Association of Recruitment Consultancies (ARC), said “In our response to
the original consultation in the Summer we raised concerns that the withdrawal
of these reliefs could have the potential to cause significant damage to the
UK’s flexible work-force. Whilst we acknowledge that the Exchequer has to
achieve savings, HM Treasury should also consider retaining measures that
ensure agency work remains an attractive option to work seekers. Otherwise what
may appear to be a short term fix to the emotive issue of tax avoidance in the
sector could turn out to be a long term disaster with HMRC recovering less than
it does now whilst at the same time rendering the UK a less attractive
workplace.”

“For example, agency
workers are likely to avoid taking up jobs that involve any significant travel
if the tax relief is no longer available unless their pay rate is increased,
and hirers are unlikely to meet higher costs. This is particularly so in
certain sectors, notably the health, education and construction sectors. Those
workers could be forced into a lower income bracket, potentially becoming
entitled to more tax credits and state benefits. As fewer workers become
available, hirers, already stretched through the shortage of skilled workers,
would be even harder pressed with a potential damaging effect on industry that
could affect viability of projects and thus tax revenue.”

The ARC believes a
balance is to be had and this may require an entirely different approach. For
example, all agency workers could be entitled to some travel expenses, to
encourage and support flexibility. At the same time HMRC could let go some
benefits such as tax free lunches when travelling – everyone eats lunch whether
travelling or not, so why the tax relief? However, on this last subject, in
response to a FOI request for a breakdown in reliefs given for travel as
separate from subsistence, the ARC has been told that the Treasury does not
retain that information. As Marlowe said “without this information how can the
Treasury assess our idea, to scrap relief on lunch cost which perhaps could
work as a simple viable half way measure and which would not upset flexibility
one iota?”

Marlowe concluded “The
problem is that the Treasury is trying to work with an already broken system so
far as HMRC is concerned. As with tax credits we urge the Treasury to do more
work in this area before committing to a specific policy that comes with the
risks we mention. This is not to support tax avoidance but rather to recognise
it yet retain principles that have worked well for battleship UK for very many
years.”