In the notes accompanying the Budget Statement of the Government, it is clear that it has set sights on some of the dodgier Umbrella Companies. It says:

Travel expenses for temporary workers

The Government has previously said that they are investigating the area of dispensation for expenses and said that they may revoke some of these retrospectively where they find that the dispensation had been taken dishonestly or where it no longer applied, i.e. where the umbrella company was not using it correctly or overusing it.

“The Government is concerned at the growing use of structures, such as 'umbrella companies' or overarching contracts of employment with employment businesses, to obtain tax relief for travel expenses that would not be available to other workers. It will monitor the use of these structures and, if necessary, consider action in the future."

PCG Viewpoint

John Kell of the Professional Contractors Group, who runs Quality Umbrella in conjunction with Parasol, said:
“This is a not unexpected consequence of the MSC rules: HMRC and the Treasury are concerned that some former MSC users have switched to PAYE umbrellas specifically to exploit the expenses rules they operate under.

Some operators in the field are gaining notoriety for advertising that contractors should claim expenses for overnight accommodation even when they have stayed at their friends’ place, or resort to similar tactics, while PCG members have very little time for that sort of scheme.

“PCG understands that this announcement in the Budget refers exclusively to this set of contractors, and HMRC are not attempting to target contractors' expenses more broadly, he said. “We will be working with the Treasury and HMRC to ensure that contractors can continue to claim fair reimbursement for expenses they incur.”

Parasol

Marc Morris of leading Umbrella Company Parasol, pointed out that a lot depends on what the government sees as priority in the long term, as it is  thinking seriously about contractors and contracting, and favoring those providers that have developed properly detailed solutions.

“We hope that it will continue to see the benefit of supporting this sector of labour market whilst marginalizing tax avoidance structures and rogue elements,” he said.

No Longer Limited Response

The point being driven home is that all umbrellas companies should only make allowance for contractor expenses that are actually incurred and not support any expense policy which is a mechanism to obtain tax relief incorrectly.

"We welcome this comment from the government and hope to work closely with HMRC to ensure that only compliant umbrella companies continue to operate in the future and that clients and agencies can be assured that their workers are being paid correctly, compliantly and on time”.

"We pride ourselves on full compliancy with all regulations, and as one of the founding companies of the new Association of Employment Management Companies (AEMC), wholeheartedly embrace the chance to review these issues with HMRC directly; and this particular topic has already been bought to the table and being consulted on by both parties."

Danbro Comment

Damian Broughton said:

"We have recently had a compliance visit from HMRC. During the visit, travel expenses were focused on. We have retained our dispensation and been given a clean bill of health…..our expense policy is clear regarding travel expenses, receipts and temporary workplaces. Compliant Umbrella Companies, like ourselves, have nothing to worry about with this announcement."

360 Contractor services comment

Damian Broughton commented  that  the contractor services industry has given the government enough reasons  for it to come down heavy on the entire industry.

"Today’s announcement and bulletin 28 released last month by HMRC make it clear that government are not going to stand by and watch operators run the gauntlet…..they will challenge umbrella companies not operating correctly and policing dispensations. If that doesn’t work, expect to see brother of MSC next year, they said.

"360 have been operating a compliant PAYE umbrella for 10 years working closely with HMRC to ensure contractors and clients work within the regulations.”