April 2016: a world without expenses

Published 3^rd March 2016
2 minutes to read

For over a year now, the Government has been threatening to restrict the expenses that contractors are able to claim. Along with others in our industry, we campaigned against this happening. Despite our best efforts, the draft Finance Bill 2016 confirms that the changes are being pushed through as expected.

What’s changing?

When we enter the new tax year, sections 289 and 339A of the Income Tax (Earnings and Pensions) Act 2003 will come into effect. These changes will prevent contractors claiming expenses, except in limited circumstances. For the vast majority of Umbrella employees, this means no more (or very few) expenses after 6th April 2016.

Unsurprisingly, 92% of Key Portfolio workers we surveyed think this is unfair, and we do too. We firmly believe contractors must be supported, empowered and rewarded. Sadly, the Government doesn’t agree.

Fortunately, we’re well positioned to help counterbalance the impact this decision could have on candidates. Our plan for 2016 is to keep doing all of the things they told us they like best about our service, while adding even more benefits. We’re keeping two things firmly in mind – compliance and candidate happiness.

The future

When the new tax year arrives, it will be business as usual for us in many ways. Key Portfolio will continue to provide your candidates with the stability and security of employment, with a service that includes:

A reliable payroll service
Sick pay and maternity/paternity pay when they need it
Centralised income from multiple recruitment agencies
Advice and support from a team of contracting experts
Ability to claim certain types of expenses, including training courses

In addition to all of this, in April we’ll be launching an exclusive package of perks and discounts, designed to help our employees’ pay stretch further. They’ll make exceptional savings on shopping, restaurants, travel, days out and lots more. At the same time, we’ll also be reducing the margin that we retain for our services.

The fundamental appeal of Key Portfolio has always centred around the stability and security of employment, and we will keep building on that concept. In fact, our intention is to evolve it into the ultimate employment service for contractors, with all sorts of added benefits that one might expect from an employer. Our perks and discounts package is just the first of these.

But that’s not all from Key. To enable us to help an even wider range of contractors, we’ll also be announcing some brand new services. These will include an accountancy practice for freelancers and a PAYE service for recruitment agencies. Some of these services may suit certain contractors better than Umbrella, and we’ll be happy to advise when the time comes.

Q&A

How will you be communicating with my candidates?

We’ve written a blog aimed at candidates and will be emailing Key Portfolio employees on Monday 7th March to advise them to read it. As always, we’ll be encouraging them to contact us with any queries they have. As a starting point, we’ve anticipated some of the questions they may ask and have answered them in our online Support Centre. If a candidate speaks to you about any of the changes happening in April, please point them in our direction – it’s what we’re here for.

Can you give me some guidance on how to promote Key Portfolio to new candidates?

Of course. We’ll be holding training webinars in March on this very topic. Keep an eye on your inbox for an invitation. In the meantime, please feel free to get in touch if you’d like to chat it through.

Oh, and our Consultant Toolkit is packed with great resources for introducing candidates to Key Portfolio. It will be fully updated shortly, ready for the new tax year.

Will you be updating your marketing materials?

Yes. Our Consultant Toolkit will be fully updated in time for these service changes launching, to allow a seamless transition into the new tax year. A revised version of our animated video will be available soon and if you currently give our postcards out to your candidates, we’ll be sending you a new supply. Drop us an email to make sure you’re on the distribution list.

What can you tell me about the perks and discounts package?

In April, we’re launching a package of perks and discounts for candidates to use at work and home. It includes exceptional savings on shopping, restaurants, travel, days out and lots more. For example, they’ll save money every time they spend at Tesco, Sainsbury’s, Morrisons, Apple, Debenhams, Paperchase, Halfords, ASOS, Marks and Spencer, Boots, Waterstones, Groupon, Trainline, Topshop, Topman, Ticketmaster and Starbucks… to name just a few! It’s all designed to help their pay stretch a little bit further.

Does this mean that any expenses I pay on top of my candidates’ rate are taxable?

Yes. The vast majority of expenses that we process for your candidates after 6th April 2016 will be taxable. This means that almost all expenses you pay in addition to their usual rate, for example a travel allowance, are taxable.

How will the new expenses legislation affect my candidates’ take-home pay?

It will vary. There are several changes happening at the start of the tax year, each with the potential to either increase or decrease take-home pay. These factors will balance out differently for each person.

Those who don’t claim any expenses are likely to see an increase to their take-home pay come April. At the other end of the scale, very high claimers may see a noticeable decrease. Most people are somewhere in the middle.

It’s worth keeping in mind that we stopped daily ‘scale rate’ subsistence expenses two years ago, deciding instead on a fully-receipted, claim-what-you-spend approach. One advantage is that many of our employees have lower weekly claims than they may have had previously, which lessens the impact on them somewhat.

What is the new legislation that prevents expense claims?

The Government are implementing two changes to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). The first, section 289, was enacted as part of Finance Act 2015. It imposes the rule that the employee’s gross salary cannot be varied according to the value of specified expenses. The specified expenses are those included within Chapter 2 and Chapter 5 of Part 5, ITEPA. In effect, this removes Umbrella employees’ entitlement to claim tax relief on the vast majority of the business expenses they currently enjoy as tax allowable, other than by direct application to HMRC via a Self-assessment Tax Return.

The second amendment is proposed section 339A ITEPA and forms part of Finance Bill 2016. As this will not be introduced to parliament until Budget Day on 16th March 2016 it remains subject to amendment. With respect to Umbrella employees, s.339A imposes a new test. If someone is caught by the new test, a further restriction is enforced for travel and subsistence expenses. Umbrella employees who are subject to the right of supervision, direction or control of any party within the temporary supply chain will be obliged to treat each engagement as a separate employment. Each assignment will therefore have to have a permanent workplace and therefore travel and subsistence expenses incurred between their home and the permanent workplace will not be tax allowable.

And there’s more. We’ve answered candidates’ questions over on Key Portfolio…

News