Back To Home Page
13-04-2015 2:41:25

Umbrella Companies Hit by Change in the Law: the Budget and you, the Broadcast Freelancer

Tom Pammenter|Freelance

 For broadcast freelancers:

We think you’ll agree: red tape is confusing at best (and painfully boring at worst) and not helped by the fact that George Osborne is perhaps not the most engaging human being.

But, in his recent Budget speech, the Chancellor dropped some news that might actually affect you.

He announced that the government is to remove tax relief on home-to-work travel costs and subsistence expenses, effectively clamping down on umbrella companies.

Keep reading to find out how this affects you.

Delivering his final Budget of this parliament – and of course just a couple of months ahead of the general election – the Chancellor said: “…we will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed.”

Tweet: Umbrella Companies Hit by Change in the Law http://ctt.ec/UwtaP+ via @Frametwentyfive

The full Budget document states:

“Autumn Statement 2014 announced that the government would review the growing use of overarching contracts of employment that allow some temporary workers and their employers to benefit from tax relief for home-to-work travel expenses, relief not generally available to other workers.

This is unfair. As a result of the review, the government will change the rules to restrict travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.

This will take effect from April 2016 following a consultation on the detail of the changes. It will level the playing field between employment businesses that seek to lower their costs by using these arrangements and those that do not.”

As things stand…

Contractors – including some broadcast freelancers – have been able to claim more tax relief than staff…resulting in the government missing out on tax revenue.

 

But…

From April 2016, contractors currently claiming tax relief on their work-based travel and subsistence will come under the Pay As You Earn (PAYE) system – making it far easier for Her Majesty’s Revenue & Customs (HMRC) to recover tax.

 

You might be wondering:

Why the delay?

The delay in introducing this change is intended to allow time for people currently working under an overarching contract of employment – a contract which typically allows for variable rates of pay and doesn’t come to an end when a particular short-term assignment ends – to make informed decisions and remove themselves from an overarching contract if they wish without being disadvantaged.

A month before the Chancellor’s speech, the Financial Secretary to the Treasury, Osborne’s colleague David Gauke, said: “Umbrella companies have been a part of the UK labour market for many years and, when operated responsibly, provide a useful conduit through which payments, including tax, can be made.”

It was a statement that didn’t go unnoticed by some affected parties. One umbrella company director said: “The government recently announced its general support of the umbrella model as a mechanism for efficient tax collection, so it would seem to be a bit short-sighted of them…to then undermine such a model by tampering with it.”

But, it appears, not all umbrella companies have been operating responsibly.

 

How do umbrella companies work?

Umbrella companies act as employers to contractors who work under a fixed-term contract on assignments at third-party companies.

When payment of an invoice is made by the company which is benefitting from the contractor’s service, the liability of the umbrella company may be reduced as it pays the contractor through PAYE with the added benefit of offsetting some of the income through claiming expenses such as travel and work-time meals (and accommodation, too, where applicable).

Umbrella companies, often accused of ‘creativity’ when it comes to claiming expenses on behalf of their contractors (primarily for travel costs and subsistence) – which is why the government has rung the changes – have become more prevalent in the UK since the government introduced IR35, which we explain here, the legislation that determines employment status and ability to make use of small company tax reliefs. It applies to every sector, including broadcast.

 

Are you part of this group?

An estimated 14% of the UK’s professional contractors manage their business by working through an umbrella company.

They (you?) are promised benefits such as “90% Take Home After Tax”, “100% HMRC Compliant” and “Backed By Leading Tax Experts”.

If you’re a broadcast freelancer and among this 14%, you might want to consider your options. It’s very likely that you’ll have to decide between joining an agency or client’s payroll – therefore becoming a PAYE worker. Alternatively, you could form a limited company. Either way, it’s best to consult your accountant or agency to work out what’s best for you.

Yes, you have time (as we write this), but you’ll need to act decisively sooner rather than later.

Why?

Because these changes will come round quickly and you can’t make the necessary adjustments to your business practices over night.

 

How does Frame 25 fit in to all this?

We take our responsibility very seriously, as you’d expect. When it comes to legislation, workers’ rights and ever-changing ‘red-tape’, our freelancers’ interests are at the core of everything we do.

We have a solid reputation for looking after our freelancers, which is why our pool of editors, broadcast engineers, playout and ingest operators continues to grow and boast a level of superior quality – as people as well as TV professionals – that we’re rightly proud of.

If you’re interested in joining them – and us – get in touch today to get the ball rolling. Or if you’re worried about how these changes might affect you, contact us to discuss your options. Our number’s 01865 366216.

 

Stay Connected
01844 218549