Member Article

Umbrella companies turning to employee benefits providers as HMRC clamps down on contractors claiming tax relief on travel and subsistence

The UK’s increasing need for flexible resourcing solutions, more cost-effective budgeting and specialist skills will see contractors play a much greater role in the workplace over the next five years. Umbrella companies play a vital role in supporting UK’s ever-growing flexible workforce.

Yet the umbrella model as we know it today is under threat, with proposed government plans to ban contractors from claiming tax relief on necessary travel and subsistence expenses coming into effect next month.

The FCSA published a recent report estimating that approximately 400,000 umbrella company contractors will be between £60 and £120 worse off per week on average under the new measures. That’s an equivalent reduction of income of approximately £3,120 per year. The impact is feared to be of even greater significance financially to many families than the loss of tax credits.

Umbrella companies have historically been an attractive solution for contractors wanting to operate as ‘self-employed’ without having to deal with complex and time consuming tax affairs. Yet under the new arrangements, contractors are ultimately disincentivised from operating under an umbrella set-up. Instead they will be forced to deal directly with the HMRC for tax returns and claims on the much disputed travel and subsistence expense, and – despite the additional costs incurred - may feel compelled to employ an accountant to manage their tax affairs entirely. Indeed, there is much speculation on whether contractors will even make a claim at all.

The situation is dire for umbrella contactors who yield very little monetary benefit from their employment circumstances anyway when compared to their traditional pay-rolled counterparts.

So what are umbrella companies doing to keep contractors compelled into working under the umbrella model in the face of these disruptive changes? They are increasingly turning to employee benefits providers to ensure that the contractor take home pay is protected.

Providers in this field traditionally help businesses of all sizes offer a suite of practical, recreational and salary-sacrifice company perks and benefits for employees to use throughout the year as a means of elevating workplace culture, retaining staff and complementing the standard monthly pay packet so that savings are made and that salaries go further.

But the same arrangements are now being mobilised for umbrella companies looking for ways in which to add value for their contractors, differentiate themselves from the competition and provide a viable and cost effective way of helping contractors keep more of their take home pay.

While perks and benefits typically include free or heavily discounted services such as corporate gym membership, money off tech equipment like laptops, cheap cinema tickets and discounts on everyday supermarket groceries, packages can include significant discounts on train travel, car rental, parking, flights and hotel stays – all of which are hugely valuable to contractors who travel frequently with their job.

The employee benefits market itself has undergone significant change over the last five years with challenger providers disrupting what has long been a stagnant and uninnovative market that once excluded SMBs and tied companies down to expensive long-term contracts. Cloud-based technology and flexible pay-as-you-go pricing models have since democratised the benefits landscape, with small businesses and global operations both using such services to retain not just staff but their customers too.

Since the announcements of the proposed changes to contractor claims on travel and subsistence expenses, Perkbox – an employee benefits provider that has about 300,000 paid business subscribers using its platform – noted a significant 40 per cent spike in enquiries and a 10 per cent increase in sign ups from umbrella companies looking for legitimate ways in which their contractors may save on costs lost under the new act to ensure the take home pay is optimised.

It seems that employee benefits are becoming a necessary buffer against the financial blow that is poised to hit umbrella companies and its contactors when the new legislation comes into effect next month. At a time where flexible working is becoming increasingly less viable for contractors under umbrella companies, employee benefits providers might just hold the key to ensuring that the umbrella model remains both compelling and sustainable in the face of disruptive change.

Saurav Chopra is CEO and co-founder of employee engagement platform Perkbox (www.perkbox.co.uk).

This was posted in Bdaily's Members' News section by Perkbox .