ContractorCalculator has moved to clarify rules surrounding ‘supervision, direction or control’ (SDC). This comes after media reports last week claimed that clients are being advised to class contractors as ‘unsupervised’ to allow them to continue claiming travel and subsistence (T&S) tax relief.
“A lot of umbrella firms, contractors and experts alike still appear to be unsure as to how SDC applies in practice,” notes ContractorCalculator CEO Dave Chaplin.
“Many assume that the existence of the right of supervision to any extent means a contractor is subject to SDC. However, HMRC is more concerned about SDC applying 'as to the manner' in which the contractor carries out their work. Supervision is fine, provided there is not detailed instruction about how to exactly carry out the task.”
Last Friday, a Guardian article reported that Dartford-based umbrella company 1st Step Solutions was encouraging clients to reclassify workers as self-employed to try to ensure that they don’t fall foul of the new legislation.
In a leaked presentation that has been circulated to clients, 1st Step Solutions states: “We can provide self-employed contractors to your sites providing there is a process in place which determines a contractor’s ability to work without SDC,” adding that its solution has been devised with expert tax and legal advice.
This is the latest example of a widely held misconception that a contractor is caught by SDC rules if they are deemed to be subject to any form of supervision, direction or control.
Based on this assumption, Marc Scott from Liberty Bishop wrote for another contracting website: “It’s hard to envisage any scenario where a temporary worker could sit out-of-scope of the proposals. It’s even harder to envisage a scenario where Supervision, Direction or Control will not exist.”
Recent HMRC guidance has done little to quell the confusion surrounding SDC rules, although it does state [ESM2055]:
“The legislation doesn’t apply if the manner in which the worker personally provides the services isn’t subject to (or to the right of) supervision, direction, or control by any person.”
“The key phrase is ‘the manner’,” explains ContractorCalculator CEO Dave Chaplin. “Supervision in and of itself is OK. The nature of the supervision is the determinate factor.”
As such, a contractor won’t necessarily lose out on T&S expenses if it is determined that they are under some form of supervision, neither are they outside of SDC boundaries if their contract simply stipulates that they aren’t supervised.
HMRC has already stated that it doesn’t consider signed waivers and generic statements won’t be considered satisfactory evidence that SDC doesn’t exist, adding each instance ‘will depend on individual arrangements’.
“Everyone is supervised to a certain extent, but not ‘as to the manner’,” highlights Chaplin. “This is a common misconception we are seeing in the market when we speak to firms about our new online SDCTesting tool.”
Firm owners recently expressed concern at an SDC compliance seminar that the overheads of checking SDC and the evidence gathering required makes it commercially unviable to continue offering expenses.
“That’s why we built SDCTesting.co.uk”, says Chaplin. “It’s a credible, fully automated, insurance backed test that can batch test hundreds and thousands of workers. It significantly reduces the in-house processing cost for umbrellas, whilst reducing their risk by ensuring they are acting in a compliant manner.”