The government has moved to close what some umbrella companies saw as a loophole they believed would have allowed contractors to continue to claim travel and subsistence (T&S) expenses, tax-free. 

Crawford Temple, chief executive of PRISM, a trade body for service providers and payment intermediaries in the temporary labour market, spoke to Recruiter  about the move. 

He said that some umbrellas had taken the view that by not naming contractors, contractors would not be subject to supervision, direction, or control (SDC) and therefore could continue to claim travel and subsistence expenses tax-free, despite new T&S legislation becoming law this week.

However, Temple said new guidance published by HM Revenue and Customs yesterday made it clear this was not the case. “The Revenue was aware that some umbrellas saw this as a loophole and have moved to clarify the position. I have heard some people say there is no change and they can carry on as before, but that isn’t the case. 

“The supervision, direction, or supervision test is applied to the person who actually provides the service; whether they are named on the contract is irrelevant,” said Temple.

In a statement commenting on the new guidance, Patrick Ford, partner at Squire Patton Boggs, said: “While welcome, the guidance published yesterday may still leave intermediaries such as recruiters and their advisers struggling to know for sure whether the rules of SDC apply in some situations. Additional information will be welcome as the pre-existing guidance was of limited assistance. For example, the practical examples it gave regarding the meaning of SDC were generally of very clear-cut and obvious cases, rather than the more nuanced situations which often need to be considered.” 

In particular, Ford said, “there is now useful guidance on when an individual will be personally providing services and who is liable where more than one client is involved in the contractual chain.” 

He added that “there are additional examples in respect of SDC, which are also helpful. However, despite yesterday’s developments, the SDC test is still inherently vague and wide-ranging – in all but the clearest cases a cautious approach (i.e. that there is SDC) is likely to be the recommended course of action.”