The proposed reforms to off-payroll working in the private sector are causing many contractors to look at alternatives to limited company contracting, such as Umbrella employment.
The fact is that expenses cannot be claimed when you’re an Umbrella worker and subject to supervision, direction and control.
It’s important to be aware of this when looking at how your financial position would change if you can no longer work through your PSC as a result of the off-payroll reforms, and is another reason not to close your PSC too soon .
Confusion has arisen around Umbrella expenses because the rules have changed. Because of this, and because each person will have different circumstances, it’s always best to take advice from specialist contractor accountants, such as ourselves.
However, when weighing up whether to switch from PSC to Umbrella, it’s best to assume that expenses cannot be claimed. This is because of new legislation was introduced in 2016 to disallow travel and subsistence (T&S) claims by Umbrella workers. T&S was a major tax advantage of Umbrella contracting before then.
Now, if you’re:
- employed by an Umbrella company and subject to SDC (supervision, direction or control) or
- assessed as ‘inside’ IR35
then you cannot claim any form of expense with Umbrella.
What if you choose Umbrella, but are not subject to SDC?
In this case, expenses would be allowed but it must be emphasised that most contractors opt for Umbrella working because there is an element of SDC in their role. Only under exceptional circumstances will this not be the case – again, this issue emphasises the need to take tailored advice from specialist contractor accountants like K&B.
How is Supervision, Direction and Control defined by HMRC?
An important distinction is that any one of the three elements – supervision, direction OR control – can make a role ‘inside’ IR35. It’s not that all three must apply. A role that is subject to supervision, without direction or control, would be inside IR35, just as much as a role that was subject to all three.
- Supervision – HMRC says supervision is applicable 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. Supervision can also involve helping the person to develop their skills and knowledge.
- Direction – Direction is someone 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 coordinate how the work is done, as it is being undertaken.
- Control – This is where someone has control over the manner in which someone works. It includes having the right to move the person from one job to another.
Testing for SDC
To determine if SDC applies, HMRC will look at:
- Documentary evidence, including the contract between you and your end client/intermediary as well as operational guidance and even job adverts.
- An analysis of how work is actually carried out in practice, gathered from enquiries with people involved in the arrangements including your employment agency and intermediary such as us, if we are your accountant.
HMRC requires the following information to be gathered:
- the services the worker was originally contracted to provide and what they actually provide or do
- who the worker works with, why and when
- where the worker works, why and when
- who checks the worker’s work, when and why – establish what has been checked, by whom, why and did any work have to be re-done
- whether the worker has been moved from one job to another – when, why and by whom
- in what circumstances the worker can refuse to do work and whether they have done so
- who the worker reports to, when and why
- whether the worker has had to seek guidance from anybody to do the work and if they have had to what guidance was required, who gave it and when.
What to do about SDC
Regardless of the implications of the new off-payroll rules, all roles must be tested against SDC criteria, and ongoing checks put in place as assignments, especially those which are long-term, tend to evolve and change over time. We can provide tailored information and advice on your particular circumstances, to help you work compliantly, and we can extend this support to your employment agency.
SDC and the off-payroll reforms
The reforms to off-payroll rules in the private sector have no bearing on the current assessment criteria for IR35. If your role is not subject to IR35 now, and there is no element of SDC, then the legislative reforms should not have an impact. The reforms relate to responsibility for IR35 assessment and compliance, rather than the actual assessment criteria.
What to do next
We provide unlimited support on compliance matters to all of our clients, so if you have any questions or concerns about Umbrella working and expenses, or the new off-payroll reforms and how they might affect your current role, please get in touch for expert advice and guidance.