Understanding the Impact: SDC Legislation and its Effects on Umbrella Companies and Contractors

Understanding the Impact: SDC Legislation and its Effects on Umbrella Companies and Contractors

Loren Taylor, the Director of Paysure Limited, provides an extensive overview of the Supervision, Direction, and Control (SDC) Legislation and its far-reaching implications for intermediaries in the contractor market.

As we approach the end of another tax year, the Chancellor of the Exchequer has been actively engaged in delivering a series of significant financial updates. In the past 12 months alone, we have witnessed the unveiling of a Summer Budget, the Autumn Statement (2015), and the annual Budget (2016). These customary updates have become expected occurrences over the years, keeping us informed about the ever-evolving financial landscape. However, in addition to these routine updates, there have been some notable legislative changes this year that have had a direct impact on the contractor market.

One such legislation, which came into effect on April 6th, focuses on the concept of Supervision, Direction, and Control (SDC), as well as salary sacrifice arrangements. This legislation has been described as a double-edged sword, emphasising the complex and multifaceted nature of its consequences.

The onus of implementing the correct procedures under this legislation primarily falls on the intermediary, which in this context refers to the Umbrella Company, such as Paysure. It is the intermediary’s responsibility to assess whether an employee would be subject to SDC, rendering them ineligible for Travel and Subsistence offset. On the other hand, if an employee falls outside the purview of SDC, they may still be able to claim certain expenses, albeit limited to mileage weekly. This dual nature of the legislation presents a considerable challenge. Regardless of an individual’s ability to prove their exemption from SDC and their eligibility for expenses, the legislation’s sacrifice element prevents the immediate allocation of pay toward these expenses. Thus, an essential question arises: what is the solution?

Under the current framework, all expenses, excluding mileage for individuals outside the scope of SDC, whether impacted by the legislation or not, would need to be claimed at the end of the tax year through the completion of a P87 form. This means that those who qualify for expense claims will not lose out entirely, but they will experience a change in the timing of offsetting these expenses. Instead of receiving immediate weekly offsets, they will have to wait until the conclusion of the tax year to claim tax relief on qualifying expenses.

To navigate this complex landscape, Paysure, like many other Umbrella Companies in the sector, has taken proactive measures. Paysure has distributed SDC Questionnaires to all its employees, enabling them to determine each individual’s position concerning SDC. Recognising that the responsibility primarily lies with the Umbrella Company to ensure compliance, Paysure approaches this matter with utmost caution and diligence.

Consequently, employees utilising Umbrella Companies like Paysure will need to adjust their expectations and wait until the end of the tax year to receive tax relief on their qualifying expenses. This change may have a slight impact on cash flow compared to the previous weekly arrangement that many employees had grown accustomed to. However, it is encouraging to note that the prevailing attitude among most individuals is one of acceptance, acknowledging that the previous arrangement was beneficial while it lasted. They are now prepared to embrace the change and exercise patience as they adapt to new circumstances.

While it is understandable that this legislation may not have been warmly received, it is important to recognise that it is a feasible framework with potential benefits. By demonstrating patience and adaptability, individuals and intermediaries can still navigate these changes and derive advantages from the revised system.

31st May 2016

Latest News

Sign up to our newsletter for all the latest updates from E3R

Top