There has been a wealth of discussion about the impact of changes to travel and subsistence expenses for contractors. From April 6, 2016 certain temporary workers can no longer claim tax relief or disregard National Insurance contributions (NICs) on the travel and subsistence expenses they incur on an ordinary commute from home-to-work.
These new regulations will affect workers employed through an employment intermediary, such as an umbrella company (a company employing workers and supplying them to business), a personal service company (PSC) or a recruitment agency/employment business.
Here we outline exactly what this will look like in practice, how certain workers will be impacted by the travel and subsistence restrictions and what each contractor must consider from April 6.
What do the new rules mean?
Put simply, any worker who works through an umbrella company or Employment Business or who is working as a limited company director within the IR35 Intermediaries Legislation can no longer claim expenses for getting to their place of work, staying in accommodation while at that location or for food and drink consumed as part of the working day.
These restrictions will only affect workers who are, in relation to the manner in which they perform their services, under (or under the right of) supervision, direction or control (SDC) of their end client or are working inside IR35. Contractors working outside of SDC or IR35 will not be affected.
Under HMRC’s new guidelines, supervision is considered to apply when you are being managed by someone to ensure work is being done to the specific standard, direction means you are given instructions to carry out work in a certain way and control means you are told what work you need to do.
IR35 is hugely complex but is primarily aimed at preventing people from claiming the tax and national insurance benefits of being a self-employed person while effectively working as an employee. In simplistic terms, If you behave like a business and manage your own time and workload, you are outside IR35. However, if you go to work each day, answer to a line manager and reap similar rewards to genuine employees, you will be deemed to be inside IR35.
11 things to consider about the travel and subsistence changes
- If you work for an Employment Business and are under, in the manner in which you carry out your role, the supervision, direction or control (SDC) of the end client – or any party related to them – you cannot claim relief for travel and subsistence expenses for travel to or from your place of work.
- Contractors are automatically assumed to be under SDC and you have to work with your umbrella company and end client to convince HMRC otherwise.
- Clients will have to provide evidence to the employment business, as they will be key in assisting the Employment Business in making the decision as to whether SDC applies or not.
- If the employment business gets the SDC assessment wrong, it will have to pay any unpaid taxes.
- If the employment business does not pay the missing tax, the end client or recruitment agency could be liable to foot the bill for the unpaid tax if they provided any fraudulent information.
- You can only claim relief on travel and subsistence expenses as an employment business worker if you are not under SDC as to the manner in which you carry out your role
- The only exception to this rule is when all of the services provided by the contractor are at the end client’s home (eg. gardeners, cleaners, etc.)
- If you operate via a limited company (PSC) and are outside of IR35, the SDC test does not apply and it’s business as usual, allowing you to claim for travel to the client.
- If you are inside IR35, you cannot claim relief for travelling to and from your client’s regular place of work.
- If you are asked to visit a site away from your regular place of work, you can claim relief for travel and subsistence expenses to these locations but only at the end of the year.
- If you are a under SDC but a mobile worker then you can claim mileage for your travel between appointments.
In the coming days we will provide a range of examples for contractors and limited companies to use as a reference and help you understand how you will be affected.