Travel and Subsistence tax relief cuts won’t affect umbrella contractors

Travel and Subsistence tax relief cuts won’t affect umbrella contractors

26 November 2015

Umbrella contractors, like those employed by Umbrella.co.uk, had a number of reasons to smile yesterday as the Chancellor George Osborne delivered his Autumn Statement address to the House of Commons.

Following months of speculation about the impact of tax changes for contractors, the statement was relatively mild compared to some of the expectations in the contractor community.

The biggest relief for contractors employed by umbrella companies is that on first reading it appears that they will still be able to claim tax relief on their Travel and Subsistence expenses.

Our interpretation of the restriction on Travel & Subsistence expenses is that it will only apply to contractors working through their own limited company that are caught by IR35 legislation.

However some umbrella companies and Industry Bodies have  interpreted the statement to mean that restrictions will apply to umbrella company workers and PSC’s caught by IR35 and that potentially there may be a Supervision, Direction and Control type test to see if a worker is entitled i.e. that they are truly self-employed.

Previously, we reported that the Travel and Subsistence expenses cuts could cost contractors as much as 20% of their annual turnover.

Today, the Blue Book document that accompanied the Chancellor’s address made it clear that these cuts will only apply to contractors who are affected by intermediaries' tax legislation, more commonly known as IR35.

The document 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.”

We interpret the reference to umbrella companies as only being there to define what an Employment Intermediary is and hence the use of the words “such as”. If you then take that part out of the statement it clearly appears to state that the Government is going to legislate against Employment Intermediaries and following consultancy the only change will be in respect of PSC’s caught by IR35.

This will become clearer on the 9th December when further detail is released. Either way we will work within the guidelines and ensure appropriate relief’s are only claimed where allowed.

A definite positive for contractors was that the one month contractor cap that was reported by two major news outlets was omitted from the Chancellor’s Autumn Statement.

We are still waiting for clarification on some details, and although some of these proposals could return at a future date, it appears that, on balance, this is a strong Autumn Statement for contractors.

Overall it looks as though the Chancellor has responded to the concerns raised by the contracting community by limiting the impact that his review will have on contractors.

The one month contractor cap could have had catastrophic consequences and it is to the Chancellors credit that he has left it out of this Autumn Statement.

We are still waiting for some clarification on the IR35 regulations, which we expect by the 9th of December, but it looks as though the Travel and Subsistence expenses cuts will not apply to umbrella contractors.

Jon Biddle, Group Chief of Operations at Umbrella.co.uk said: “This Autumn Statement has been a massive relief for contractors who are employed by umbrella companies like Umbrella.co.uk. The continuing availability of Travel and Subsistence tax relief is invaluable for our contractors, many of whom cover long distances in the day-to-day running of their businesses.”