Reply to: Umbrella - Parasol - Travelling Costs?

[Rialto99]

That's some question Rialto OK, bearing in mind that this is a very complicated area - technically for the travel to be allowable there has to be a reasonable assumption that the contractor will be working in more than one location. It is taken that all travel allowances will be from the contractor's home to the workplace as all workplaces are temporary. To assume that the permanent place of work is the umbrella company's head office would mean that, in theory, mileage could be allowed from there to the contract address. If your umbrella company is based in Scotland and your contract is in Cornwall you would have some hefty mileage claims which would obviously be disallowed.

If someone takes a contract for 2 weeks in between leaving one permanent job and starting another then the expense will not be allowable as there is no reasonable assumption that they will be working in another temporary location. It can be argued that a first contract will not mean that the expense should be disallowed if there are circumstances which point towards reasonable assumption eg. if someone has left their permanent job and has no source of employment other than contracting. From the umbrella company point of view you just have to ask the right questions so that you can give the contractor the best advice. As we have discussed here many times, underpayment of tax would come back to the contractor as an individual which is why you should ensure that your umbrella company is compliant. This is difficult to do if you are new to the game I know but that's where CUK comes in and why research is so important.

It was a question wasn't it!

So to summarise, from a ContractorUmbrella perspective:-

1. Contractor joins, and signs an 'overarching' employment contract with you. In the contract there must be some mutual agreement / understanding that the employee (Mr Contractor) shall undertaken MORE THAN ONE assignment (or have the INTENTION at the point of signing to undertake more than one assignment).

2. ContractorUmbrella regard the client's premises for his first assignment as a Temporary Workplace and the CONTRACTOR'S HOME ADDRESS as his Permanent workplace (i.e the place where is fills out his timesheets and sorts out random 'contracting' paperwork (lets say). As client's premises are 'Temporary', Mr Contractor is told by ContractorUmbrella that working through an Umbrella Company is tax efficient because he can claim home to work travel (amongst other expenses).

3. So, three months into his first assignment, Mr Contractor gets offered a Permie Job and decides to take it. He has claimed £3000 in home to work travel expenses at the point of accepting the new job.

This is the bit you'll need to firm up on....

4. ContractorUmbrella should (at that point) be notified by Mr Contractor that he (at that point) no longer has THE INTENSION to undertake more than one assignment with you. ContractorUmbrella makes some form of note on your system to ensure his expense account is frozen for home to work travel.

5. Mr Contractor tries to put through expenses (home to work travel) after this point and for the remainder of his first assignment but ContractorUmbrella kindly refuse on the basis of what was previous discussed.

6. Now, here's the interesting bit. Mr Contractor has just finished his last day (of his first and only assignment) and phones ContractorUmbrella to thank them for an efficient service. After initial pleasantries, does ContractorUmbrella:-

a). Simply warn Mr Contractor that as he has claimed £3,000 in home to work travel, he will be liable to pay back the tax saved IF HMRC REVIEW his record when they come to audit ContractorUmbrella?

b). Say nothing

c). Send Mr Contractor an invoice (on behalf of HMRC) for the tax saved by claiming £3,000 in expenses.

d). Warn Mr Contractor that as he has claimed £3,000 in home to work travel, he will be liable to pay back the tax saved. Also inform Mr Contractor that it is ContractorUmbrella's duty to now send a letter / phone the local tax office and tell them to 'review' Mr Contractor's account as they (ContractorUmbrella) believe he has underpaid tax whilst employed by ContractorUmbrella.

Last question, I promise The answer is either a, b, c or d. Please also correct me if any of the above in inaccurate.

Cheers
R

[LisaContractorUmbrella]

Cheers Lisa, this is good stuff and as you say a very grey area indeed. So back to my original question for you (adapted just slightly!)....

From a ContractorUmbrella point of view, if a contractor signs up next Monday and signs your 'overarching employment contract', then commences his first 'assignment'....

1. Where is the contractor's Permanent workplace? (assuming of course the clients premises are deemed to be his Temporary workplace). Is it his home or the ContractorUmbrella head office? What would you say to Mr HMRC?

2. If he only performs this one assignment under his 'employment' with ContractorUmbrella (and then starts a full time job with someone else), should he pay back the tax he has saved by claiming travelling expenses for this one assignment? Surely you must come across this situation all the time. Contractor leaves, you look through his account and notice he has only performed one assignment but has in fact claimed over (say) £3,000 in home to work travel. Question is Lisa, what would ContractorUmbrella do in this situation and who ultimately is responsible for paying back the tax saved to HMRC? - is it Mr Contractor or is it ContractorUmbrella? If it is the contractor, how the h3ll are you going to get that money back off him? now there's a question for you...!

Cheers

R

That's some question Rialto OK, bearing in mind that this is a very complicated area - technically for the travel to be allowable there has to be a reasonable assumption that the contractor will be working in more than one location. It is taken that all travel allowances will be from the contractor's home to the workplace as all workplaces are temporary. To assume that the permanent place of work is the umbrella company's head office would mean that, in theory, mileage could be allowed from there to the contract address. If your umbrella company is based in Scotland and your contract is in Cornwall you would have some hefty mileage claims which would obviously be disallowed.

If someone takes a contract for 2 weeks in between leaving one permanent job and starting another then the expense will not be allowable as there is no reasonable assumption that they will be working in another temporary location. It can be argued that a first contract will not mean that the expense should be disallowed if there are circumstances which point towards reasonable assumption eg. if someone has left their permanent job and has no source of employment other than contracting. From the umbrella company point of view you just have to ask the right questions so that you can give the contractor the best advice. As we have discussed here many times, underpayment of tax would come back to the contractor as an individual which is why you should ensure that your umbrella company is compliant. This is difficult to do if you are new to the game I know but that's where CUK comes in and why research is so important.

[Cowboy Bob]

If it is the contractor, how the h3ll are you going to get that money back off him? now there's a question for you...!

In this situation it wouldn't be the brolly getting the money back as they haven't spent it. It would be HMRC trying to get it back, as it would be they who have given out the tax relief. The process could potentially get very painful depending on the amount HMRC deems that you owe.

[Rialto99]

As you say Rialto this is a grey area to a degree as the IR seem unable to agree on the issue any more than we all do. However, from a brolly perspective, contractors are 'employed' by the umbrella company and a compliant company will have what is called an over arching contract. This means that the contractor is effectively working on a series of temporary contracts for the umbrella company and therefore are entitled to claim travel.

Cheers Lisa, this is good stuff and as you say a very grey area indeed. So back to my original question for you (adapted just slightly!)....

From a ContractorUmbrella point of view, if a contractor signs up next Monday and signs your 'overarching employment contract', then commences his first 'assignment'....

1. Where is the contractor's Permanent workplace? (assuming of course the clients premises are deemed to be his Temporary workplace). Is it his home or the ContractorUmbrella head office? What would you say to Mr HMRC?

2. If he only performs this one assignment under his 'employment' with ContractorUmbrella (and then starts a full time job with someone else), should he pay back the tax he has saved by claiming travelling expenses for this one assignment? Surely you must come across this situation all the time. Contractor leaves, you look through his account and notice he has only performed one assignment but has in fact claimed over (say) £3,000 in home to work travel. Question is Lisa, what would ContractorUmbrella do in this situation and who ultimately is responsible for paying back the tax saved to HMRC? - is it Mr Contractor or is it ContractorUmbrella? If it is the contractor, how the h3ll are you going to get that money back off him? now there's a question for you...!

Cheers

R

[Kylie4485]

One way they could prove it I suppose, is if you had an open-ended contract (ongoing) and that ran over your 24 months employment at the same client.

[TheFaQQer]

How could they prove what you intended? The nature of contract work is that you have an end date; you never intend to stay beyond that.

Same way that they can "prove" that I'm a disguised employee

[VectraMan]

So if you intend to do more than one contract through the umbrella, then your travel to the contract is temporary and travel allowed.

How could they prove what you intended? The nature of contract work is that you have an end date; you never intend to stay beyond that.

[Kylie4485]

TF

I think the point being is that it is such a grey area, and people are trying to make it black and white, which isn't going to happen as we do not have a definitive answer.

I think when you are stating to an Umbrella company the General opinion and they say 'yes but what about this' pointing out loopholes in the system, that’s when you need to re-think your brolly.

Contractor Umbrella and Parasol are trying their very hardest to be good, compliant companies, and that’s how the whole industry needs to be.

[TheFaQQer]

Hi all I received this from the HR, thought it might help in some areas of your discussion

Employees are entitled to tax relief for travel between home and a temporary workplace. A temporary workplace is somewhere an employee goes to carry out a task of limited duration, i.e. less than 24 months. So, very broadly, if in an ongoing employment an employee is sent to work at more than one significantly different workplace for a short period of time, tax relief may be due for his or her travel expenses. However, if the employee only expects to work at one workplace during the employment then that will be not be a temporary workplace, no matter how long he or she is there for.

To deal with the specific circumstances described in your e-mail, if an employee has an ongoing employment with the umbrella company in question and expects to be sent to a series of short term different workplaces then tax relief may be due for home to work travel. However, if the intention is only to work at one workplace then tax relief will not be due no matter how long the employment lasts.

The issues can get more complicated than that. However, I hope this deals with your query.

Hmmm...

So if you intend to do more than one contract through the umbrella, then your travel to the contract is temporary and travel allowed.

If you don't, then it isn't.

So if you do one contract with Umbrella A, and then move to Umbrella B then your travel expenses incurred under A would be disallowed.

(And good afternoon, Kylie!)

[Kylie4485]

Hi all I received this from the HR, thought it might help in some areas of your discussion

Employees are entitled to tax relief for travel between home and a temporary workplace. A temporary workplace is somewhere an employee goes to carry out a task of limited duration, i.e. less than 24 months. So, very broadly, if in an ongoing employment an employee is sent to work at more than one significantly different workplace for a short period of time, tax relief may be due for his or her travel expenses. However, if the employee only expects to work at one workplace during the employment then that will be not be a temporary workplace, no matter how long he or she is there for.

To deal with the specific circumstances described in your e-mail, if an employee has an ongoing employment with the umbrella company in question and expects to be sent to a series of short term different workplaces then tax relief may be due for home to work travel. However, if the intention is only to work at one workplace then tax relief will not be due no matter how long the employment lasts.

The issues can get more complicated than that. However, I hope this deals with your query.

[LisaContractorUmbrella]

Or not, perhaps. As an agency worker,which is arguably what an umbrella-based contractor is, there is an additional criterion...


Section 44 is what we klnow as the Agency Regs.

That's it Mal - make a grey area greyer If you are going to argue from that point of view you would have to prove that umbrella company fits the definition of an agency according to the legislation which they don't

[NotAllThere]

- not that I'm an expert -

But here's a comment from someone who is.

[malvolio]

As you say Rialto this is a grey area to a degree as the IR seem unable to agree on the issue any more than we all do. However, from a brolly perspective, contractors are 'employed' by the umbrella company and a compliant company will have what is called an over arching contract. This means that the contractor is effectively working on a series of temporary contracts for the umbrella company and therefore are entitled to claim travel.

Or not, perhaps. As an agency worker,which is arguably what an umbrella-based contractor is, there is an additional criterion...

Where a worker provides his or her services through an agency and the agency legislation in Section 44 ITEPA 2003 applies, each agency contract is treated as a separate employment, see ESM2000 onwards. Therefore, where there is only one workplace for an agency contract that workplace will be a permanent workplace for that employment.

Section 44 is what we klnow as the Agency Regs.

[TheFaQQer]

OK, the daisy chain starts at http://www.hmrc.gov.uk/manuals/eimanual/EIM32075.htm
whic defines the overall concept. If you follow the sub-references down you get to
(my italics) which I believe - not that I'm an expert - takes out the umbrella company definition. You are at the workplace for the duration of your contract, which meets the above definition. It's only temporary if you expect to move on to another contract with the same umbrella: proving that intention is tricky, and if you change umbrellas for the next contract your previously claimed expenses would not be allowable.

Tricky, isn't it...

That's quite an important point that I bet a lot of people miss!

[LisaContractorUmbrella]

It would be good to get an answer / interpretation from Lisa at ContractorUmbrella. Maybe she's read my persistent requests and decided not to put her neck on the line!!!

Its easy posting answers when it's a clear cut question. This on the other hand, is somewhat of a grey area. Come on Lisa, do me proud.....

R

As you say Rialto this is a grey area to a degree as the IR seem unable to agree on the issue any more than we all do. However, from a brolly perspective, contractors are 'employed' by the umbrella company and a compliant company will have what is called an over arching contract. This means that the contractor is effectively working on a series of temporary contracts for the umbrella company and therefore are entitled to claim travel.