The Chancellor of The Exchequer’s Autumn Statement turned out to be a damp squib. Umbrella companies, recruitment agencies and the individuals and businesses that work with them had to wait until 9 December 2015 to discover HM Revenue & Customs’ (HMRC) response to the travel and subsistence expense reform submissions they had received.  At the risk of over simplifying a complicated issue, HMRC has decided to carry on regardless.

Our LinkedIn article published in October 2015 (What a carry on – a view on reforming the umbrella sector) warned of a fundamental flaw at the heart of the approach HMRC proposed to adopt.  The flaw being that everyone that is employed by an umbrella company is subject to supervision, direction or control or the right of supervision, direction or control because that is the very nature of employment.  Bewilderingly, despite submissions pointing this out, this flaw remains.

The draft legislation that has been published has not yet received the Royal Assent and there is still time for its failings to be corrected.  However, if enacted, unchecked this would mean that, from 6 April 2016, no umbrella employer could safely pay travel and subsistence expenses to any umbrella employees free of income tax and National Insurance deductions.

This issue was raised with HMRC, during the consultation process.  To HMRC’s credit it sought to allay these concerns by reassuring those affected that this was not HMRC’s intention. In fact, HMRC suggested that giving such a literal interpretation to what they proposed was plain wrong.  At the roundtable discussion with HMRC that Crest Plus attended Adrian Dixon (HMRC) said that not even the most pedantic of tax inspectors would take such a purist approach.  Nevertheless, this error, inadvertent or otherwise, has not been corrected.  Moreover, legislation should always be interpreted literally and the fact that HMRC has done nothing to address our concern is disappointing.

This is by no means the only flaw with the draft legislation proposed.  This particular issue works in HMRC’s favour, but there are others that have the opposite result and they have the potential to scupper what HMRC hopes to achieve.

The approach that HMRC is championing is ill conceived, rushed and poorly constructed.  No wonder then that some interested parties are considering mounting a legal challenge.  At least that was the prevailing mood at some of the industry events we have attended recently.  Who would have thought that JR would come to the rescue?  Whilst you should not expect a comeback from Larry Hagman and his ten-gallon hat any time soon, an application for judicial review may be on the cards.  As old JR would say “if you can’t get in the front door, just go around to the back.”