As REM once said, it’s the end of the world, as we know it, or is it? Our friends in HMRC released a new consultation paper last week that explores the concept of Over Arching Employment Contracts and Expenses. Or put another way, “Expense abuse by Umbrella Companies and Agencies”.
Parasol and others are being asked to consult in relation to some of the issues around how expenses are paid. Key to this is the HMRC view that an over arching employment contract is not a guarantee of true employment and that “fairness” between workers is not being applied. There could be some union/EU pressure there but the gist is that an IT guy claiming expenses doing the same job as the “perm” has an unfair advantage over the permie. Don’t shoot the messenger! We all know that there are significant differences but HMRC take a “bigger picture” view it would seem.
If you are using or have used Parasol you will also know that we are stringent with our expense policy (and we have lost Contractors because we won’t bend the rules) but others are not. Some Agencies also allow an element of expense claiming via a PAYE solution and these factors combined have it seems, driven HMRC to take a look. Clearly there is also a tax take point here, and with deficits, some money will have to be found.
The paper presents a couple of options plus requests for other ideas. The first option (in general) looks at how HMRC can be stronger with policing expense dispensation issues, perhaps even going as far as reducing the amount of time expenses can be claimed for and on what basis – that’s the good news! The other option is for HMRC to try to remove travel and subsistence expenses for “temporary workers” completely! The latter also affects those some Agencies that use an amount of expenses with a PAYE scheme.
So, are we panicking at Parasol House? No – I have long said that expenses should be better policed and that a level playing was better for all. Over claiming of expenses that are not actually incurred has never been good practice, seems HMRC have finally had enough. We of course believe that a properly compliant expense policy is what is needed, we can also demonstrate that we are more like an EDS or Logica than a simple trading entity. Will EDS be told to stop allowing expenses for their consultants?
So my message is that we will be keeping you updated and would want to hear your views too, Remember we are talking to HMRC about this and your support in explaining just how different you consider yourself against your permie colleagues could be vital. You will also hear and read about the end of the world for Umbrellas and as such; rest assured Parasol is very different to most. So I welcome an attempt to create a level playing field and we have an excellent track record of being ahead of the game in these matters.
Have a great August.
Rob
by Rob Crossland
Expenses – Buyer Beware
December 17, 2007 in Business Expenses, Industry comment
There has been quite a bit of noise and “information” flying around on various Contractor forums recently. Mostly this has related to the age-old subject of “dispensations” and how “new” providers are incorrectly using these. For the record, a dispensation is simply a facility for the employer (Umbrella) to reduce administration of expense claims from the employee (Contractor). It does not provide a mechanism for a Contractor to over claim expenses (set limits within the dispensation document) that are not actually being incurred. Perhaps we should consider some of the reasons why an Umbrella might do this…
Some of the ex Composite providers (MSC) that are now operating as a PAYE Umbrella are now facing diminished profitability and I suggest this may the over arching reason for taking some chances (with Contractors I might add!). The economies of scale and income streams they previously enjoyed have been drastically reduced following the MSC legislation. Profit from interest on corporation tax will have been hit along and new costs introduced from either changing into “accountants” or becoming an Umbrella company. Therefore they have to replace that profit with increased volumes and one way to do that is to appeal to the Contractors pocket.
Genuine business expenses are of course perfectly legitimate but the liability for claiming to set limits without receipts, and for expenses that were not incurred, is with the Contractor. Just make sure that when you receive a quote from an Umbrella it is not hiding expenses that you simply can’t claim for.
Companies promoting this type of stance do the industry and Contractors no favours. It simply suggests that legislation will be required and that will only harm Contractors and the genuine businesses that exist to help Contractors work effectively, safely and with no hassle.
Buyer Beware!
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