Travel and Subsistence - All Change for Contractors

Posted 26th Feb 2016

The once treasured travel and subsistence relief for contractors will be restricted from April of this year and, If you don’t already know, this means that contractors, those working under umbrella or limited company vehicles, will no longer be able to claim tax relief for work-to-home travel expenses where it is shown that they are subject supervision, direction or control (SDC).

The removal of this tax relief will impact many and whether or not a contractor will no longer be able to claim depends on their status under the dreaded IR35. So, what’s it all about and how will you be affected?

The History

In 2014, HMRC published "Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses." This document outlined the intention of the Government to clamp down on contractors who might be subject to SDC and who claim tax relief for travel and subsistence costs (much used to reduce a contractor’s tax burden).

Overarching employment contracts have been employed, via umbrella companies, to allow contractors tax relief with their daily travel expenses - a necessary benefit for workers who forego the usual protections afforded to permanent members of staff and embrace the risks associated with contracting.

What’s New?

From 6th April 2016, workers employed through umbrella companies or their own personal services company (PSC) whose employment keeps them within IR35 (i.e. they are subject to supervision, direction or control) will no longer be able to claim the tax relief for travel and subsistence. Contractors who remain outside the remit of IR35 will not be affected by the changes.

Supervision, Direction and Control?

Supervision: a person must oversee the work being undertaken by the contractor. If the contractor is being supervised to ensure they carry out their work as contracted, they are under "supervision".

Direction: for a contractor to be under "direction" they must have the manner in which they undertake their duties directed to them. The person directing must advise, provide guidelines, or instruct the contractor.

Control: if a person instructs the contractor what to do and how the contractor should complete the task, they will be under "control". Further, should a contractor be moved from one role to another, they will be deemed to under "control".

The above is merely for general guidance and should not be considered advice upon which to rely and make financial decisions. The changes to travel and subsistence will be subject to challenges as people fall foul of the new measures. As with all tax rules and legislation, the specifics will be uncertain until tested in court and precedents are set. However, it is usual in tax matters for issues to be decided case-by-case and so professional advice must always be sought prior to making any decisions that may adversely affect your tax liabilities.

Please be aware that expense claims are often decided on a case by case basis so we would always recommend speaking to your accountant about your individual situation.

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