More tightening of the screw

Travel expenses consultation shows further contempt for PSC’s

Personal service companies have been talked about in the same breath as tax avoidance for quite a while now so should we have been surprised by the grand slam of Budget proposals that were announced last week, one of which is to deprive these businesses of claiming tax relief on traveling expenses? Well quite frankly, yes because they were just over the top and no one saw them coming. 

The consultation document titled, ‘Employment Intermediaries and Tax Relief for Travel and Subsistence’, has now been published and will run for 12 weeks until 30th September. It follows the discussion document released in December 2014 and the proposals at Budget 2015,  and proposes to remove home-to-work travel and subsistence tax relief where a worker is employed through an employment intermediary and under the supervision, direction or control of any person. 

According to HMRC, in recent years there has been a substantial increase in the number of workers recruited working through employment intermediaries such as umbrella companies, employment businesses and PSC’s. In the case of umbrella companies one of the main attractions to any contractor is the generous travel and subsistence expenses upon which tax relief can be claimed. In a normal employment situation these expenses would be classified as ordinary commuting and tax relief would be denied, so it is right that this is addressed in the interests of fairness. 

As from the 6th April 2016, the government is now proposing that where a worker is engaged via an employment intermediary (one whose business is substantially the supply of labour services) and is:

  • supplying personal services to an engager;  AND

  • under the right of supervision, direction and control of any person

then they will not be entitled to tax relief on their home-to-work travel and subsistence expenses. 

To prevent any attempt to turn an ordinary commuting journey into a business journey simply by arranging a business appointment en route, any payment made to a worker for travel between their engagers’ workplace and:

  • the workers home; OR

  • any other place the worker visits for non-work reasons; OR

  • any place where the worker performs the duties of another job or engagement

will be treated as earnings subject to PAYE tax and NIC, provided they are under supervision, direction or control in their employment. 

Supervision, Direction or Control

HMRC consider the definitions to be as follows:


Someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge. 


Someone making a person do his/her work in a certain way by providing them with instructions, guidance, or advice as to how the work must be done. Someone providing direction will often co-ordinate how the work is done, as it is being undertaken. 


Someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another. 

The right of some person to control a worker isn’t limited and can include an engager or its subsidiary, an employment business or intermediary, independent managers and consultants. 

In determining whether the right of control exists HMRC will consider the worker’s arrangements overall, ie contractual and actual, so it will not be enough for a contract to imply a total absence of control. 

HMRC will consider a number of factors such as the work being performed by the worker and whether they can decide when, where or how the work is carried out. Where there are procedures, methods and instructions which must be followed then it is likely that there will be supervision, direction or control over the manner in which the services are provided. Being required to adhere to statutory requirements such as health and safety, however, will not be a determining factor. 

PAYE debt transfer

Two options are proposed that will transfer the liability for the PAYE debt incurred from misuse of travel and subsistence tax relief to the engager, one of which will be adopted. 

Option 1

It will be the engager’s responsibility to confirm with the employment intermediary whether the worker will be under the right of control. If HMRC discovers that there has been abuse of the travel and subsistence rules and inappropriate or false claims have been made, the engager will be held jointly and severally liable for the PAYE debt arising. 

Where the employment intermediary can demonstrate they were misled by the engager with regards to the manner in which the worker’s employment would be carried out or, if appropriate, where HMRC can’t pursue the employment intermediary for any reason, then the end user will be held liable for the PAYE and NIC. 

Option 2

Again, the engager will remain responsible for confirming the existence or absence of control and should they provide false information they will carry the can for the tax and NIC liability arising out of the incorrect application of the rules. 

This is a degree of good news as it will force end clients to be completely transparent about the working practices, well control at least, or suffer the consequences. 

Enforcing compliance

Just how are HMRC going to enforce these new rules? Well the department say that they are already carrying out a number of enquiries into a substantial number of employment intermediaries, including umbrella companies and employment businesses. 

The Revenue are continuing to centralise and co-ordinate its enforcement and compliance activities to better focus on risk and intervention, as well as throwing more resources at non-compliant employment intermediaries.

Whilst these proposals are aimed at creating tax fairness across the board they fail to recognise that PSC’s are genuine businesses that take on financial risks in running them. Is it fair then to treat them the same as an umbrella company? I would care to suggest not but the government justify this by pointing out that over the last 5 years it has decreased the tax burden by way of increases to the personal allowance.

The PSC landscape is changing and one can be forgiven for thinking that the government will not be happy until it is barren. 

The full document can be found here


  • Glennn says:

    I live in Spain and commute home for the weekend. I have also been granted the right to work from home 1-2 days/week so I have major concerns about this.

    Coupled with dividend tax, the UK is fast becoming anti business and no longer a viable option. When the decision is made, I will be forced to hire an international tax consultant or simply abandon the country.

  • Nicholas says:

    Quite ridiculous. This isn’t even about PSC vs employees. It’s just basic common sense.

    In France, permanent employees claim travel expenses as deductions on their tax returns. The expenses occurred when traveling to work are not a lifestyle choice but an unfortunate necessity in order to be able to work.

    How can UK politicians be so backwards that they ignore such obvious logic? People do not travel to work for fun.

  • Paul M says:

    If end clients are going to be liable, then they’re going to cover their backs by putting a clause in future contracts saying the contractor must not claim tax relief on travel & subsistence. So in practice it won’t matter whether you’re really subject to SDC or not – if you want to work, you’ll have to sign the contract, so you’ll have to stop claiming relief anyway.

    Many PSC contractors decided at the last election that they should get into bed with the Tories. Turns out that if you go to bed with the Tories, then you get @#%&ed!

  • Zippy says:

    I blame the growth in employment agencies and their tax abusive behaviour with NI and expenses. So HMG uses a sledge hammer. The side effects of this won’t be good for GB plc.

  • Si says:

    So I pay an odd job man for a days work to come round my house and fix a bunch of things. As the day goes on I decide painting a wall is more important to me that fixing a cupboard, and he can no longer claim his petrol back.

    What about a travelling hairdresser, they now have to cut your hair without asking you how you want it?

    Where does this strange notion about control being a condition of disguised employment come from? Many employees are left to their own devices to perform a task, and many genuine freelancers are told by the client how they want their tasks performed. It’s totally arbitrary.

  • Jonny says:

    MPs claim expenses yet they are employees on a fixed 5 yr contract, aren’t they ? :-S

  • Andrew Harrison says:

    The budget isn’t about tax revenues or about unfairness in the tax system. Remember a politicians job is to get re-elected. So anything they say is about being seen to be tough on negative behaviour and supportive of as big a group of the voting population as they can manage. Again the key phrase is “being seen” – create an enemy “one man companies avoiding tax” and jump on them. There isn’t much downside from a ministers point of view. After all how many 1 man companies take on politicians on lucrative salaries after their term of office?

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