HMRC confirms Travel & Subsistence Restrictions

11/27/2015 - 13:49

The confusion that was surrounding the wording in the Autumn Statement documents regarding restrictions to be imposed on tax relief for Contractor Travel and Subsistence claims has now been clarified by HMRC.

The initial confusion was compounded by the fact that George Osborne made no mention of any proposed changes during his speech.

The statement itself states:

“As confirmed at Summer Budget 2015, the government will legislate to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company.

“Following consultation, relief will be restricted for individuals working through personal service companies where the intermediaries legislation applies. This change will take effect from 6 April 2016.”

Our initial interpretation and that of others was that following consultation the only change would be in respect of contractors working through their own Personal Service Company if they are caught by IR35.

Others interpreted the statement as actually saying that tax relief will be restricted for umbrella companies and personal service companies but only those personal service companies that are restricted by IR35.

The FCSA sought clarification from HMRC who reportedly confirmed to them that the meaning of the statement is that from 6th April 2016 tax relief will be restricted for workers working through employment intermediaries including umbrella companies and PSC’s where the intermediaries legislation applies (i.e. they are caught by IR35).

This then raises the question into what restricted means?

Does this mean no expenses can be claimed? If that was the case it would presumably say they are to be stopped or scrapped. Restricted implies in some instances expenses can still be paid tax free?

The truth is nobody knows for sure.

Many believe this means there could be Supervision, Direction & Control test to ascertain the contractors deemed employment status. IR35 is also rumoured to be changing along those lines so if that was the case contractors who pass the test would still be entitled to relief whether they work through an umbrella company or a Personal Service Company. That would actually seem the route the Government propose to take.

We have argued previously that Supervision, Direction and Control is a meaningless test about whether a workplace can be classed as temporary and a contractor entitled to relief.

For example if you work for a firm of accountants and are sent to fulfil a temporary role at a client’s then you are reimbursed tax free for your travel and subsistence irrespective of whether the client supervises you or not. Why should a contractor be treated differently?

The current test that the assignment is less than 24 months is the same for contractors and employed people sent on an assignment. This should be a sufficient test and has been in the past.

For all Umbrella Companies the majority of relief that is claimed is in respect of a minority of contractors who travel significant distances. It is wrong for the Government to say these contractors don’t deserve compensating for this tax free. In no way are they travelling distances expected of equivalent permanent employees who have the comfort of working near home or moving to be near a new permanent place of work.

Another, and in our opinion more sensible, type of restriction could be that your distance to work has to be over a certain distance to be classified as temporary. i.e. if you live within XX miles of your client.

The fact is contractors travelling considerable distances to fulfil a need for their services and deserve to be reimbursed this cost tax free.

All will become clear on 9th December 2015 when the amendments to the Finance Bill will be published.

We will keep you updated with any developments and continue to work to influence this process. We will resume correspondence with George Osborne who is our local MP for Tatton (which incorporates Wilmslow where we are based).

If you are a contractor or work in the employment sector then there is still time for you to write to your local MP voicing your concerns regarding any changes to tax relief for contractor expenses.

It is worth noting that other costs such as accommodation will still be reimbursed tax free where they meet our current rules. Seemingly this could encourage contractors to stay in overnight accommodation rather than to travel!

As always we shall continue to work within the rules to provide ongoing support to the UK contractor and freelance workforce.

Some Positive News!!

If you are a contractor and your contract is outside the scope of IR35 then you will be able to continue to be reimbursed for your travel and subsistence expenses tax free for the while.

Further Good News was that the Autumn Statement did not make any changes to IR35 as had been previously suggested in “leaked reports”. Rumours of a “One Month Rule” after which all contractors would have to be paid PAYE failed to materialise.

Also remember, as stated above, “restricted” probably still means that some will qualify for the right to claim for Travel & Subsistence and also that any new rules won’t affect other expense types you currently qualify for.

It is also believed that if you role involves travel to other locations then these journeys will still be able to be claimed.

If you are a contractor and are considering working through your own limited company please call Umbrella Accountants on 0800 121 6513 or email

We specialise in providing accountancy services through FreeAgent accounting software. Designed to demystify accounting for contractors and freelancers throughout the UK.