Umbrella companies

Prior to 1998 in order to claim travel expenses a person had to hold a travelling appointment.  In other words travel had to be part of the duties of the employment. The majority of the workforce of this country travel in order to get to work and such travelling puts that person in a position to do the job - it isn’t incurred while doing the job.

Problems arose where people were in one employment and moved from site to site.  These workers have no base – they have no “normal” place of employment – they are based at the site at which they work and are commonly referred to as “site-based employees”.

In 1988 one of these site-based employees challenged the then Inland Revenue by making a claim for overnight subsistence whilst working on- site. He had no regular place of employment but he did have only one employer with whom he had a direct employer-employee relationship with no other parties being involved. His job was to travel the country working a few months on one site and few months on another. He lost the case with the judgement being that he was based wherever he worked and for that period of time he was simply travelling to and from work.  However, the judge did comment that the rules were extremely strict and in this case rather harsh. 

Revised legislation was introduced in April 1998 and was worded in such a way that the site-based employee working under similar circumstances as the case that was taken before the courts would be granted the travel and subsistence subject to certain limits (e.g. the 24 month rule). 

It is important to note that the legislation was designed to grant travel and subsistence allowances to employees who moved from site to site within their employment.  It was not designed to grant an allowance to the person who moved from employer to employer working at one site per employment.

The person who has a series of temporary employments will not be able to claim if the workplace for each employment remains the same throughout.  Take for example the person who answers adverts in the paper. For the first three months of the year he gets a fixed-term temporary job with Tesco stacking shelves at one of their stores. For the next three months he gets another fixed-term temporary job filing for the tax office, and for the three months after that he has a fixed-term temporary summer job working for the local parks department of the council. For the last three months of the year he has a fixed-term temporary job with a local delivery firm filling in for a driver who was off sick.

That person will not be able to claim the travel expenses as there is no continuity of employment.  These are four separate employments working at four separate locations. For travel expenses to be allowable the workplace has to be “temporary”, in other words the workplace has to change or has to be capable of and is likely to change. In this case it is the job that changes and not the workplace so it is the job that is temporary and not the workplace.

Taking this a stage further, employers tend to recruit temporary staff via an agency and as we are aware legislation requires agencies to tax individuals as if they were employees.  HMRC regard each engagement arranged by an agency as a separate discrete employment - therefore if a person does fulfil a series of engagements with an agency there will still be no valid claim. 

The situation with Umbrella Companies

In order for the person to be entitled to claim the travel expenses there has to be continuity within one employer but an umbrella is not an employer in the true sense of the word in that it is not a provider of employment. Whether or not an employment exists is dependent upon many factors. Two main pointers to employer/employee relationships are that the employer will guarantee a minimum number of hours and will also pay the employee between engagements even if there is no work.  These are important elements of the overarching contract.

Earlier we looked at a scenario where the person worked for four employers during a year, with three months per employment at a separate workplace for each employer. As each employment was separate and distinct (and within each employment the workplace did not change) there was no valid claim to travel expenses.  The same is the case if the person was working through an agency.  But bring in an umbrella with an overarching contract and we have the same situation in that the person works for four end users at four separate locations but this time the travel expenses are allowable. 

The legislation was never intended to grant an allowance for temporary workers.  The legislation is aimed at employees who work at temporary workplaces as part of their employment. That is the problem that HMRC are faced with – that a section of the country’s temporary workforce are legitimately claiming, and being allowed, travel expenses.  HMRC claim to have evidence that some Umbrella Companies are acting in a non-compliant manner. So what are HMRC going to do about it? Do they simply tackle those who are being non-compliant or go a stage further and introduce legislation that would spell the death of the over arching contract?  If they choose the latter then, at the moment, it seems that the only alternative open is for individuals to use their own limited company.