THE GOVERNMENT has taken a step in the draft Finance Bill 2015 against the abuse of umbrella companies for tax purposes with measures against their use in disguising income.
According to chancellor George Osborne, employers are increasingly using of overarching contracts of employment through employment intermediaries such as umbrella companies. These arrangements “enable workers to obtain tax relief for home to work travel that would not ordinarily be available”, the government said.
It added in the draft Bill that “the government will publish a discussion paper shortly to inform possible action at Budget 2015”.
Critics are urging caution, with the CIoT noting they “have been around for a long time and offer overarching contracts of employment, which allow some temporary workers to benefit from tax relief for home-to-work travel expenses”.
However, umbrella companies are unpopular with the government because they use the underlying travel expenses rules in a way that was never intended.
MHA MacIntyre Hudson tax partner Alastair Kendrick told Accountancy Age: “It’s a pet subject for both the government and Labour. It’s an issue that will affect many employers. Many umbrella companies won’t be able to make the margin if the advantage is terminated. In many instances the umbrella company will just fall away and the staff will go back to the original employer.
“The major problem in the public sector is the use of the umbrella depresses the number on headcount. Taking it away might result in some sort of pressure from above to cut headcount.”
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