HMRC consults on tax rules for temps working for employment intermediaries

Following the announcement in the Autumn Statement, HMRC has published a discussion document seeking views on the use of overarching contracts of employment (OAC) by employment intermediaries in the temporary labour market, particularly focusing umbrella companies hiring temporary workers and relief for travel and subsistence expenses, for comment by 10 February 2015.

This discussion document has been published following the announcement in the Autumn Statement 2014 that the government would review the use of OAC by employment intermediaries in the temporary labour market to take advantage of the rules for travel and subsistence expenses.

The government’s view is that at present these arrangements mean that some people are able to benefit from tax relief on home to work travel expenses that is not generally available to others. This enables intermediaries to reduce the gross taxable pay of their workers at the expense of the general taxpayer, with a cost to the Exchequer of approximately £400m a year from umbrella companies alone.

It is recognised that other employment intermediaries use similar OACs, although the extent to which they are used to confer employment rights as opposed to solely being a mechanism to avoid tax is unclear, according to the government.

This discussion paper covers:

  • the background to the issue, explains how these contracts work in practice and the interaction with tax rules for travel and subsistence;
  • the case for change, including the impact of these arrangements on the Exchequer; and
  • proposals for tackling these issues.

The response to this document will inform decisions for Budget 2015. However, any proposed measure to address this misuse will not come into effect until 2016 at the earliest.

The closing date for feedback is 10 February 2015.

The consultation document is available from at

Meg Wilson |CTA Senior technical writer - tax, Croner-i

Meg Wilson CTA, is a senior technical writer - tax at ...

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