April 2016 - Changes to Travel and Subsistence Expenses
If you are looking for the 2016 changes to dividends please click here.
Travel and subsistence relief for contractors is due to be restricted if their end-user supervises, directs and controls them, according to the Budget 2015.
This means that tax relief for work-to-home travel expenses will no longer be available to umbrella or limited company workers if there is ‘SDC’ (Supervision, Direction or Control) of a person, according to pages 61-62 of the latest budget.
Addressing the House of Commons in his Budget Speech Chancellor George Osborne said: "We will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed.”
The new rules are expected to come into effect for the tax year commencing 6 April 2016, following a consultation period, but how will they affect you? Let’s look at the new rules and what this actually means for contractors of both umbrella and limited companies.
On 16 April 2014, the HMRC published a document called "Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses” and this outlined the coalition Government’s plans to clampdown on the misuse of travel and subsistence rules.
The practice is believed to have been carried out by a small number of umbrella companies that used overarching employment contracts to provide contractors with tax relief for their work to home travel expenses – a practice that is not available to permanent employees and should be the right of those truly self-employed individuals that are taking the risks associated when working independently.
The new rules
As of 6 April 2016, any worker employed through an umbrella company or a limited company director working inside IR35 can no longer claim for travel and subsistence costs such as expenses and incur tax relief on these costs.
These restrictions will only be in place for workers who are under the SDC of their end-client, or are essentially working inside IR35. For more information on IR35, please Click Here.
Contractors working outside of IR35 will not be affected by the proposed changes. However, limited company directors, which are already deemed ‘caught’ by IR35, will not be able to claim tax relief on their expenses in the same way as they have previously done.
What does Supervision, Direction and Control actually mean?
HMRC has produced some outlining typical examples and scenarios under the new expenses legislation to help contractors understand the new rules a little more. Under the SDC definitions, supervision is considered to apply to someone managing a person doing work to ensure it is being done to the specific standard, direction means someone makes a person carry out their work in a certain way by providing instructions and control means someone determining what work a person does.
The document also provides helpful examples and scenarios for different contractor types such as IT consultants, professional chefs and market researchers.
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.