Travel and Subsistence

Introduction

In 2016 there were some significant changes on how tax relief on expenses, notably, travel and subsistence (T&S) could be claimed. Coming into effect on 6 April 2016, umbrella employees were no longer allowed to claim tax relief on travel and subsistence when subject to supervision, direction or control (SDC).

HM Revenue & Customs held a series of consultations that were focused on limiting the number of individuals that could claim tax relief on travel and subsistence. The primary focus was on contractors working through an umbrella company and contractors operating their own limited companies that were working on contracts inside IR35.

The government initially raised concerns in 2014 because employment businesses and umbrella companies were overarching contracts of employment with contractors that were actually being treated like full time employees. These contractors were able to claim tax relief on expenses that genuine full-time employees could not, such as the travel to and from the workplace and their home. Currently these benefits are still available to genuine self-employed workers who are operating independently.

Agency workers are now deemed employees of the agency on a series of separate employments when working for each of the agency’s clients. Each place that he/she works is considered as a separate permanent workplace whereby no relief is due.

For example, if a contract needs to be performed in London and the individual needs to commute on a daily basis, under the new rules, he/she is unable to claim relief for the cost of travel as a business expense. This is because the individual in this case will be working under the same circumstances as a permanent employee and the office in London will be a permanent place of work for the duration of the contract. However, if he/she needed to travel to Leeds for a one-off meeting, the cost of travel can be claimed as a business expense.

When did the legislation come into force and who does it apply to?

The legislation came into force in April 2016 and applies to all who are:

1. Supplied by an intermediary (for instance, a personal service company, umbrella company) to a third party and;
2. Under SDC of the end client or inside IR35.

If prevented from claiming expenses in relation to work assignments, when looking at future assignments, individuals might be more active in seeking assignments abroad. Those who cannot move abroad and do not compensate for their losses may consider leaving contracting. They may also be less likely to take assignments involving significant expenses or look for assignments with higher rates to compensate them for a loss of expenses relief. Workers who have been reluctant in the past to set up their own limited company and have preferred to operate through umbrella companies in order to avoid the paperwork involved in running their own business might find this option more attractive than ever.