Contractors' Travel and Subsistence Expenses - A thing of the past?
Posted on 11th April 2016
Contractors in the UK may have heard recent rumblings of new legislation placing restrictions on claiming tax relief on travel and subsistence. The dreaded “IR35” will take effect from this month (April 2016), but what do the changes mean for you?
Let's start from the beginning...
A 2014/15 consultation, entitled “Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses”, expressed governmental concern that employment intermediaries were entitled to tax relief on expenses that their permanent counterparts were not. On the back of this, the March 2015 Budget announced that only genuinely self-employed workers should be entitled to tax relief on travel and subsistence. The rationale behind this decision was that employment intermediaries don’t tend to take the same risks as those whose contracts are completely independent.
The Budget is somewhat of a hefty document, so rather than read through all 124 pages, here are the excerpts contractors need to be aware of when it comes to IR35:
“The government’s intention is that where a worker is employed through an employment intermediary, then they will not be entitled to tax and NIC’s relief on travel and subsistence expenses incurred for home-to-work travel.
“Although only where they are supplying personal services to an engager, and under the right of supervision, direction or control of any person.”
Or, in plain English…
What do they mean by "employment intermediary"?
They’re referring to an agency, employment business, umbrella company, or personal service company (also known as PSCs). Unfortunately, it may also affect you if you have your own limited company to which the legislation applies (i.e. you sit within IR35).
There’s no doubt they’ve cast a wide net here. Essentially, unless you deal directly with the company you’re carrying out work for, and there is no agency involvement in any way, you’re likely to be caught by IR35. Oh, joy.
What about "Suervision, Direction and Control"?
A Supervision, Direction, and Control (SDC) test is used to determine your employment status as a contractor. If it doesn’t find that all three categories are applicable to you, you will not be affected by the changes, and will still be entitled to tax relief on travel and subsistence.
But let’s not get too excited. Once again, these categories are rather wide-reaching.
Supervision: your work is managed by someone who ensures it is carried out to a certain standard
Direction: instructions are provided to ensure your work is carried out in a certain way
Control: a person dictates the work that you do
When these are broken down, it is difficult to imagine a scenario where Supervision, Direction, or Control will not exist in actuality.
And it gets even better. The right of SDC can sit anywhere within the contractual chain, and need only be there in principle. And if you are engaged by or through an agency (i.e. you are employed through one of the “employment intermediaries” we mentioned earlier) there will be a presumption of SDC.
Given that there is no need for supervision, direction, or control to even exist in actuality, it doesn’t leave much hope.
Can we finish of a high note?
Well, the good news is that this new rule does not affect any other expenses, and that business travel (i.e. from one office to another, and from the office to client premises) will not be affected in any way.
Thank goodness for small mercies.
If you have any queries regarding IR35 and these changes will affect you, please don’t hesitate to get in touch.
Written by:
Nicola J O'Sullivan -
Effective Accounting
Founder | Xero Champion | IR35 Expert
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