Changes to travel and subsistence claims introduced by the Government in the Budget came into force on April 6 this year. These changes have been hotly debated but have serious implications for contractors and limited companies (PSCs) alike.
In a new series of blogs we will provide examples of workers in key sectors to help understand how the new rules will affect you. In this blog, we look at how temporary workers in the legal, banking and financial sectors are going to be affected by the crackdown on claiming tax relief or a disregard for National Insurance contributions (NICs) on travel and subsistence expenses.
Working for an umbrella company or Employment Business
Sandy works through an employment intermediary and is under the supervision, direction or control of the end client. She work at the firm’s Leeds office for four months and then moves across to the Manchester office for another four months before then spending another two months at the Birmingham office.
She is reimbursed for her travel and subsistence costs to all three offices but is now not entitled to claim tax or NICs relief for any of the journeys as all three locations will be classed as permanent workplaces.
However, while working at the Manchester office, Sandy is asked to spend three days supporting the team in Birmingham. While Sandy can’t claim for her travel to and from Manchester, she can claim relief on travel and subsistence costs while in Birmingham because this is a temporary workplace and not a new engagement.
When she moves to the Birmingham office for the two-month engagement, Sandy drives there on a Monday and stays in a bed and breakfast during the week before driving home on Friday evening. Again, because this is a permanent workplace, Sandy cannot claim any deductions from tax or NICs for her travel and subsistence expenses.
The same firm also hires Sue to provide a range of services. Sue also works through an employment intermediary, but does not meet the supervision, direction or control test. She works on a range of assignments for the firm, spending two months in Leeds, three months in Birmingham, a week in Manchester and a month at their London HQ.
As Sue is not under the supervision, direction or control of anyone, all of these offices are classed as temporary workplaces and she is entitled to tax and NICs relief for travel and subsistence expenses from her home to all of these locations.
Working through a PSC / Limited Company
Ben has his own PSC (limited company) and works on a long-term contract at the same firm’s Manchester office. Previously he was able to claim travel and subsistence expenses for getting to his place of work but, as he is inside the IR35 Intermediaries Legislation, he will no longer be able to claim relief on tax and NICs.
Occasionally, Ben is asked to spend time at the firm’s other offices around the country. These are classed as temporary locations and he can still claim relief for travel and subsistence expenses from his permanent workplace to these offices.
Victoria also has her own limited company and is on an 18-month fixed term contract with the firm. She operates outside of IR35 and is entitled to claim relief on her expenses for travelling from her home to the office.
However, Victoria works alongside another limited company owner, Julian, who is also outside of IR35 but is on a three-year, fixed term contract. The Government says any contract that exceeds 24 months or is expected to exceed 24 months should be classed as a permanent workplace. As Julian has a contract that breaches the 24-month rule, he is not entitled to claim relief on travel and subsistence claims to the same office.
How much will the travel and subsistence changes cost me?
Danbro’s research shows that average annual travel and subsistence claims in the legal and financial sector add up to £6,284 a year. For those who can no longer claim tax and NICs relief on these expenses, they will lose £1,633.88 if they earn £40,000 a year and up to £2,890.71 if they earn £80,000 a year.
Key things to consider are that contractors who work through an employment intermediary are automatically assumed to be under the supervision, direction or control of someone and you must work with the umbrella company, agency or end client to prove otherwise.
For those with their own company, you are responsible for deciding whether you are inside or outside IR35. This Intermediaries Legislation is hugely complicated and we would recommend you speak to our team for advice and look at our IR35 guides for more information.
Despite these changes, umbrella companies still offer a wealth of benefits to contractors. Finding a quality partner is key. The right umbrella provider will save you time and reduce your costs by managing all backroom business functions. You can also draw on their expertise and insights and trust that you will not fall foul of any of the new changes.
At Danbro we also deliver a wealth of technology to make the process as efficient as possible and we work hard to make sure we support every aspect of the contractor’s life with services like pension schemes, cover for illness, accidents and medical procedures, systems for maintaining income when you’re out of work and a rewards scheme that delivers an average of £1,600 a year in savings across all aspects of your life.
If you’re concerned about any of the changes or the issues we have raised, please contact our expert team and we will be happy to help.