Supervision, Direction and Control – the story continues

Straight from the horse’s mouth

Last week I had the pleasure of meeting with the very people responsible for making decisions around the implementation of SDC at HMRC’s headquarters in a rainy London. I was accompanied by a number of umbrella company owners and directors representing All Umbrella Companies Are Equal (AUCAE). The intention of the meeting was to discuss how their intentions to push for SDC as the key indicator for whether a contractor can claim travel and subsistence expenses will impact in the real world. They also suggested that they wanted us, as senior figures in the umbrella industry, to assist them in developing the SDC test.

With regards to the last point, there was an initial reaction of “why should we?”

As an industry body, we have consistently worked alongside HMRC to drive best practice and compliance standards in the industry. We have continually highlighted companies that have acted in bad faith, who have exploited not only loopholes in legislation but also exploited the very workers they were supposed to support. We have helped them develop policy and to a great extent we have acted as tax collectors on their behalf, making sure they were receiving the right amount of tax – rather than promoting tax avoidance.

And how have we been rewarded for this continual support? The seemingly rushed legislation that could potentially eliminate our business model at great cost to the UK economy and at considerable cost to the flexible workforce of which we are justly proud.

Unintended consequences

We have made it clear in our responses to the discussion and consultation around the restriction of travel and subsistence expenses, that if the eligibility test was the very wide (and somewhat vague) definition that is in case law at the moment, then there would be mass market shift to “new” tax avoidance schemes or to PSC (Limited company).

We don’t even need to wait until the legislation comes into force on the 6th April to know that we were right.

We are already seeing the emergence of a new sector – there are countless schemes popping up that promise agencies and clients that they will be able to provide their workers with a compliant solution that will still allow them to claim expenses in a post SDC world. The common theme of all of these schemes is that they are based on “QC’s Opinion” and we all know how useful that is!

As an umbrella businesses that also provides an accountancy service, we are also already seeing agencies pushing their contractors down the Limited Company route, even when it is clear that working via a PSC is not the correct model for them. Incidentally, we would never encourage a contractor who would not benefit from going limited to do so, even if we are under pressure from the client or agency.

The We Told You So Dance

To mis-quote an industry colleague – should we all now be doing the We Told You So Dance? Maybe so, as we warned HMRC throughout the process that this is what would happen and now it has come to fruition. Could they now be starting to listen?

The pressure is on

There are increasing numbers of groups and individual stakeholders getting involved in the pressure being put on Government to amend their thinking. The CBI, IPSE and even members of the Lords and MPs themselves have now gone public condemning the short sighted action of using the legislative sledgehammer to crack the nut. Even some of the Unions who were so aggressive in their condemnation of the umbrella industry (without understanding how it works) are now backtracking as they have realised that many of their members will be adversely affected.

A short time left

So, do we swallow our pride and agree to assist HMRC? I think we must, otherwise we will get to 6th April and it will be too late to persuade them to make changes. We will probably rue a lost opportunity if we don’t push as hard as we can.

Next steps

It became clear from our meeting that HMRC still feel that their definitions of SDC are narrow and will only affect a small number of umbrella employees. However, when we actually look at the case law, the whole subject is very vague. Our understanding is that it will be the onus of the worker to prove that there is no Supervision, Direction or Control when they engage on a contract and we all know how difficult it is to prove a negative.

At the meeting we were assured by HMRC that we would receive guidance by the end of March. So if we assume that actually means that it will be provided on 31st March (based on past experience) then that will only leave the industry 6 days to digest and react to the guidance. That is clearly ridiculous.

However, we began to get the feeling that HMRC are listening and we have been asked to provide examples of industry sectors, job roles and scenarios where workers are going to be adversely affected by the legislation and where we feel that SDC should not apply.

Let us hope we are right and it’s not too late to influence the guidance at the very least.

Your voice

We would love for our contractors to add their voice – if you feel that your work in a role that is not akin to that of an employee but you are likely to be penalized by the broad SDC test that HMRC are proposing, please let us know and we will add your case to the examples we submit.

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