By Graham Webber, WTT
Following a recent article that The Freelance Informer published on the Exchequer umbrella case v. HMRC, readers wanted more clarity on the difference between different types of contracts and the role of expenses, especially in the building and construction trades. Graham Webber, Director of Tax, at WTT offers his guidance.
What is the key difference between an overarching contract of employment and a single contract of employment for expenses purposes?
It is common practice for agencies of employees to have an agreement with several individuals who basically form a “pool” of workers who can be drawn upon to fulfil the requirements of upstream end clients.
For example, an agency may contract with say a dozen carpenters and when called upon by an end client to supply say five carpenters, will be able to ask that population who might be available.
In this model, the agency has a number of choices as to how to engage with that worker pool.
They can ask the individuals to become employees of the agency, under a contract, but on the understanding that there may not always be work for all of them, all the time.
When there is work, however, the contract terms become effective. Often each assignment under the contract is detailed in a “schedule” which is not itself a contract. Often individuals are paid a retainer rate to be available. This is sometimes known as an overarching contract.
Another method of dealing with the same circumstances is for the agency to have on-call a number of individuals who it engages each time a work opportunity is offered and accepted. In this case, the contract for the job on offer may be with the agency or maybe with the end client or maybe with an umbrella charged with operating payroll.
In this model, the chances are that each contract is a separate contract of employment (if the usual tests of supervision, direction and control are present). We’ll call this a single contract.
Where the workers are required to be in several different places to perform the job, the question of travel costs arises.
In general travel from home to work is not tax-deductible. Therefore, if reimbursed, this is taxable.
Travel between workplaces is tax-deductible and if reimbursed is not taxable.
This begs the question of where is the usual place of work?
If there are multiple sites which are visited regularly, it is possible to claim that the most frequently visited is the “usual place of work” and that travel from there to another site is tax-deductible. If that other site is the first trip of the day – from home – then the usual home-to-office trip (and expense) should be deducted.
The above rule will therefore only be in play if there is an overarching contract.
If there is a contract for each site, each journey from home to site will be seen as home-to-office travel and if reimbursed, will be taxable.
If taxable expenses are paid, who is liable for the tax?
If an employer knowingly makes payments for expenses known to be taxable, the employer is liable to deduct tax from them.
If an employer unknowingly makes payments for expenses subsequently found to be taxable, HMRC may ask the employer to pay the tax if they are in time to raise an assessment.
They may, however, impose the tax upon the recipient of the money. Unfortunately, it appears that there is no consistent pattern and it may largely depend on circumstances as to who gets taxed.
Expenses can be claimed and are dependent upon the relationship between an employee (inside IR35) and the engager/employer.
Are there any instances that an agency worker can charge back expenses? And if they did they would have to produce receipts?
In this instance, the question is whether they are taxable.
If they meet the guidelines and are within HMRC limits and HMRC has agreed with the employer/engager that they can be paid outside of the tax net, then there is no further liability.
However, outside the guidelines (e.g. home to work) or outside the limits (e.g., more than 45p a mile) or the employer has no agreement with HMRC, then the amounts become taxable.
If so, it’s up to the recipient to show that the expenses would have been allowable.
Have a question relating to tax? Write to the Tax Clinic here.
| A big thank you goes out to WTT Consulting for providing this expert response |
