Finance Bill 2016 and
Charteris Management


Knowledge Base / Legal Advice / Finance Bill 2016 and Charteris Management


The government has introduced legislation in Finance Bill 2016, under S339A ITEPA 2003, to restrict tax relief for home to work travel and subsistence expenses for workers engaged through an employment intermediary.

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These changes came into effect on 6th April 2016 and mean that as an umbrella company (the Intermediary), Charteris Management have had to change our structured payroll model to be legally effective, and equally as legally tax efficient as it can be. The desired outcome from the government perspective through this new legislation is to see a much more ‘regulated’ industry sector.

Charteris Management invested a significant amount of time and money into our payroll and back-office systems.

In the run-up to this date, we also carried out extensive due diligence through our legal and technical advisors. Our solicitors, Brodies of Edinburgh, and accountants Mazars LLP advised us on the legal framework of our IR35 review process to ensure that it is ‘fit for purpose’ and will correctly stand as evidence if ever needed in the event of any challenges from HMRC. The payroll models that we operate have also been technically appraised by Mazars LLP to ensure the correctness of application from a tax law perspective. Their written opinions will be included in our compliance pack which is sent to all agencies/end clients at the start of each engagement.


Our default position will be that all contracts will fall under SDC and the appropriate payroll model will be used.

Where a worker wishes to claim that their position does not fall under SDC and attempts to claim relevant expenses, then we will apply for a contract review through a third party contract reviewing system which will cover both the agency contract and an IR35 Working Practice Questionnaire

The resulting final review and questionnaires will be passed back to the agency/end client for discussion – where it is found that both the contract review and questionnaire are clear that SDC does not apply then we shall seek the opinion of the agency/end client before signing off and applying the appropriate payroll model.

All documentation will be digitally stored by us and held for any future audit. It will be mandatory for the contract worker to agree that this information may be shared by the agency/end client.


Prior to 6th April 2016, the payroll model used by most umbrella companies has been classed as a ‘Salary Sacrifice’ arrangement. As this is a contentious point and there are many aspects of the definition, we have decided that we should remodel our existing payroll structure to avoid contention.

We have adopted the ‘Fixed Expenses Model’ which would appear to fit firmly within HMRC’s preferences. This also allows a ‘reasonable’ and acceptable element of tax relief on certain expenses in line with HMRC’s guidance. Any excess expenses over and above this fixed amount that may be sought by the worker are correctly rolled through to year-end for the claim through their annual self-assessment which they will submit to HMRC.


To operate the correct payroll structure for each worker it will be important first of all to identify their status as IN or OUT OF scope of SDC and to assess their likely expenses.

At this point it should be made clear that after reviewing our contractor base we have assessed that these changes will only affect a small proportion of our contractors; the majority do not as a general rule make expense claims other than agency/client reimbursable expenses which are not affected by these changes.

There are 4 categories a worker can fall into:

IN scope of SDC

1. Does not claim expenses No risk
2. Claims expenses Risk managed through audit control OUT of scope of SDC
3. Does not claim expenses No risk
4. Claims expenses Higher risk – managed through review and audit control

Clearly, workers falling into 1 and 3 will not be affected and the payroll status quo will continue.

Workers in category 2 will be directly affected and will not be able to claim Travel and Subsistence related expenses but will still be able to claim certain other ‘relevant’ expenses and the fixed expenses payroll structure will accommodate this.

Workers in category 4 that are not in the scope of SDC and claim expenses will be able to continue to claim Travel and Subsistence and other expenses, however, the ‘fixed’ element of the structure will limit the claims to within the agreed annual expense level at £2500 pa.

The payroll structure will protect the National Living Wage/ National Minimum Wage element and not allow any erosion of this value.

The company’s expenses policy is built into the structure and combining this with the expenses audit we carry out will ensure that only legitimate and evidenced claims will pass through.

Where expenses claims are made that are over the ‘fixed’ limit for the pay period, the excess amount(s) of the claims are held in the system and allocated when a sufficient amount becomes available in the next or successive pay periods. At the year-end, or in the case of cessation of employment and the issue of a P45, any held excess claim values are reported to the worker for their potential year-end self-assessment claim to HMRC. Our sister company Ezyco Accounts offers contractors their self-assessment services to those who are interested.


There has been much debate and discussion within the industry about the perceived impact of these changes, much of it has been driven by ‘marketing orientated scare-mongering and some of it out of ignorance of the workings of the legislation. There is no doubt that the debates will continue but, with time and practice, we are certain that where clear principles have been applied, the ‘right’ structures will prevail.

We believe that the structure that we have applied from 6th April 2016 has properly taken into account all of the legislation and what it is trying to achieve, that it is ‘fit for purpose’ and meets the requirements of all concerned; contractor, umbrella company, agency/end client and more specifically, HMRC.

If you wish to discuss any of these points further with myself or my team, please do not hesitate to get in touch


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