Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment his Department has made of the impact on contractors' ability to claim reasonable expenses of being classed as employees of umbrella personal service companies; and what the Government guidance is on the use of umbrella companies by public sector bodies.

The Government introduced changes in April 2016 to bring people who work through employment intermediaries, including umbrella companies, into line with most workers who cannot claim tax relief for their ordinary commuting costs. Deemed employees can therefore claim tax relief on expenses, including overnight stays and business travel away from their usual place of work, in the same way as those employed directly.

Deemed employees can also claim tax relief on expenses, including equipment, tools and professional fees in the same way as those employed directly. This means that they may be able to claim tax relief where expenses are needed to allow them to do their job and it is used exclusively for work purposes.

HMRC have published advice on applying supply chain due diligence principles to assure labour supply chains including where an umbrella company is used by public sector bodies, which can be found on GOV.UK: https://www.gov.uk/government/publications/use-of-labour-providers/advice-on-applying-supply-chain-due-diligence-principles-to-assure-your-labour-supply-chains.

Under the off-payroll working rules, the fee-payer will become the deemed employer of the individual for tax and NICs purposes. However, the fee in relation to the engagement will still be paid to and received by the personal service company (PSC), albeit net of income tax and employee National Insurance contributions. Thus an individual’s PSC should still be able to use this income to meet such costs as pension payments.