Legislation: Need to Know

Current legislation on travel and subsistence benefits

Prior to April 2016, all freelance workers were able to claim tax relief on relevant travel and subsistence expenses.

With effect from April 2016, freelance workers, whether operating through an umbrella company or a personal service company, have no longer been permitted to claim tax relief on travel and subsistence costs in respect of travel to and from the client’s premises if their contracts are deemed to be caught by the IR35 legislation, or if they are under the supervision, direction and control of their end-client.

However, if you travel to attend a one-off business meeting at a site you don’t usually visit, you will be able to claim the travel costs associated with attending the meeting.

In circumstances where tax relief is no longer available, you may still arrange with the client for us to recharge travel and subsistence expenses on your behalf, but when paid to you these expenses will be taxed together with your salary. Alternatively, of course, you could increase your charge-out rate to cover the extra cost.

Travel and subsistence includes:

  • Train and bus fares
  • Mileage
  • Meals
  • Hotels
  • Congestion charges
  • Car hire
  • Parking
  • Rented accommodation
  • Air fares

If your client were to arrange and pay directly for your travel and hotel accommodation there are P11D ‘benefits in kind’ issues which arise so we would not recommend this.

You can see the guidance provided by HMRC here.

Supervision, direction and control (SDC)

HMRC define ‘supervision, direction and control’ in the agency legislation as follows:

  • Supervision over the manner in which the worker provides the services is the action or process of watching or overseeing what a person does or how something is to be done. If a person checks or has the right to check the work that the worker is doing to make sure it meets a required standard, the manner in which the worker provides the services is subject to supervision. Supervision can involve helping the worker develop their skills and knowledge.
  • Direction over the manner in which the worker provides the services is making a worker do their 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.
  • Control over the manner in which the worker provides the services is telling or instructing a worker about how they do the work. Control over how the person does work also includes someone having the power to move the person from one job to another. If someone can say “don’t do it like that” or “do it like this” then they have a right of control as to the manner in which a person works.

Only one of these items has to apply to be considered under SDC, and for travel expenses not to be paid free of tax.

Employment Agency Regulations (opting in/out)

These regulations affect the relationship that you and we have with the agency, and the relationship that the agency has with the end-client. By default you and we are opted in to the regulations, meaning that the agency must pay our fees for the work you do for the end-client regardless of whether they have been paid by the end-client. We therefore have a degree of protection if we are opted in.

However, if we are opted in, the agency becomes involved in laborious compliance work, and for this reason they would normally be reluctant to offer assignments. Therefore, the tradition has always been for interims and senior independent professionals to opt out of these regulations.

This is done by signing a declaration before being introduced to the end-client, and you may do this on behalf of Competex Umbrella Ltd. The agency will assist with the documentation.

Agency Workers Regulations

In principle, the Agency Workers Regulations give all ‘agency workers’, the right to the same basic working and employment conditions that they would have received if they had been employed directly by the end-client in the same job, regardless of pay or position.

In brief the regulations state that:

  • If you are an ‘agency worker’ you have a right after 12 weeks service with a client to equal pay and equal working hours, rest breaks and holiday provisions, and the right to paid time off for ante-natal appointments, that a ‘comparable’ permanent employee of your client receives.
  • These 12 weeks do not have to be continuous.

Whether you are in-scope or out of scope

The way you operate as a freelance worker will determine whether the regulations apply to you or not:

  • Workers are in-scope and entitled to equal treatment if they are supplied through temporary work agencies (TWAs), even if they supply their services through a payroll umbrella company. These workers invariably work under the end-client’s direction or supervision.

In these cases, the end-client and the umbrella company have a duty to ensure that these workers receive comparable pay and employment rights to comparable permanent employees of the end-client.

  • Workers are out of scope and not entitled to equal treatment if they operate through a payroll umbrella company using the Full (or permanent) Employment Model, known as the Swedish Derogation Model (see below). These workers are out of scope for equal pay treatment, but they remain entitled to equal treatment for rest breaks, holidays etc.

In these cases, neither the end-client nor the umbrella company has a duty to ensure that these workers receive comparable pay, or employment rights comparable to those of permanent employees of the end-client.

The Swedish Derogation Model – an explanation

When the Agency Workers Directive was negotiated at EU level a Swedish delegation negotiated a clause that said:

Where ‘agency workers’ are employed on a permanent contract by a Temporary Work Agency, and receive pay between assignments, the Agency Working Regulations rights to equal pay for an agency worker no longer exists.

To qualify as being ‘out of scope’, these workers must therefore be employed by an umbrella company and work through a temporary work agency, and their contract must provide for full, permanent employment whereby they receive equal treatment for hours, rest breaks, holiday entitlement, and time off for ante-natal appointments. They do not receive the right to equal pay; however, most contractors are engaged in work where there are no comparable workers and therefore equal treatment cannot apply, or where they are already being paid more than comparable workers.

There are three conditions for the Swedish Derogation Model to apply correctly:

  • A permanent contract of employment between the umbrella company and the temporary work agency must be in place before the start of the agency worker’s first assignment, and the employment must be genuine. However, this has now been clarified by the courts to mean that every time a new contract is signed with the end-client or an amendment to a contract is signed, this counts as a ‘first’ assignment. This means that the Swedish Derogation Model needs only be in place from the start of the latest assignment with the end-client.
  • An umbrella company that employs freelance workers using the Swedish Derogation Model will have a legal obligation to pay these workers between assignments a minimum amount for no less than four calendar weeks. The minimum amount that can be paid is 50% of the worker’s average basic pay for the last 12 weeks, or at least the national minimum wage. If you are employed under a Swedish Derogation Model contract then your employment will normally be terminated by the umbrella company after four weeks if there is no further work.
  • The temporary work agency must take reasonable steps to seek suitable further employment for the worker when their assignment ends.

In truth, the Agency Workers Regulations have limited application to interim managers and other independent professionals since their daily rates of pay invariably compare well with permanent employees.

Amy FowlerLegislation: Need to Know