Draft Finance Bill 2016 Issued
As disclosed in the Chancellor’s Autumn Statement, the Government have drafted legislation changes that will see workers employed through umbrella companies no longer being eligible for tax relief (Income Tax and Employee National Insurance) on reimbursement of their travel and subsistence expenses.
The change is expected to affect up to 430,000 umbrella company workers.
Relief will be restricted where services are supplied under the supervision, direction or control of another person.
In effect the Government are saying that the journey a contractor makes to their client’s place of work is a normal work journey equivalent to a full time employee travelling to their workplace.
Clearly this is not the case for many contractors who travel hundreds of miles each week to places that in no way could be classified as a normal permanent place of work. Very few permanent employees choose to travel long distances to their fixed place of work and if they are placed somewhere short term (as a contractor is) then they are entitled to reimbursement tax free. Clearly this is not fair and something we will continue to highlight to the Government.
There are some scenarios even when the SDC test is failed where contractors can get tax relief tax.
The following scenarios are given:
1.Jim is employed under an overarching contract of employment with X Ltd meeting the tests of supervision, direction or control outlined in EIM80100. During the three months Jim os working in Crawley in X Ltd’s warehouse he is asked to spend three days working at X Ltd’s other warehouse in Shoreham. He is not entitled to relief for travel and subsistence in respect of travel to and from Crawley, but is entitled to a deduction under section 338 ITEPA for the travel and subsistence costs to go to Shoreham as this is travel to a temporary workplace and is not a new engagement.
2.District nurses John is employed as a district nurse. He is supplied to the Health Authority by an employment intermediary and works out of a hospital in Cambridge and meets the tests of supervision, direction or control in the manner he performs his duties. He travels from home to the hospital to get his appointments for that day then visits patients throughout the county and goes directly home after his last visit. Under the provisions of section 339A, the hospital is classed as a permanent workplace. There will be no tax or NICs relief on journeys from home to the hospital and from last appointment to home. Tax and NICs relief will be available on the journeys from the hospital to the first patients’ house and between the patients’ houses as each house is not a new engagement. This consistent with the existing rules for travel to temporary workplaces.
3.Site based workers (See EIM32132) Site-based workers will continue to be able to claim relief on their travel and subsistence, where they are travelling to different sites as part of the same engagement. Where they are engaged through an employment intermediary, and the manner in which they undertake their role is under the supervision, direction or control of another party, then if they are travelling to the same site for all, or almost all, of the engagement, then they generally will not receive relief for their travel costs. This is currently the case for those temporary workers engaged directly, or through an agency. Where a site based worker is under supervision, direction or control and is employed through an employment intermediary then the site will be treated as a permanent workplace. Consequently, there will be no tax or NICs relief on travel between home and the site.
The Draft Finance Bill is expected to come into force 6th April 2016.
“Following the introduction of this measure, certain temporary workers will not be able to claim tax relief or a disregard for National Insurance contributions (NICs) on the travel and subsistence expenses they incur on an ordinary commute from home-to-work. The restrictions will apply to workers who are employed through an employment intermediary, such as an umbrella company, or a recruitment agency/employment business and who are supplying personal services (largely supplying their skills or labour) under the supervision, direction or control, of any person, in the manner in which they undertake their role.
Those individuals who supply their services through small limited companies, generally known as PSCs will no longer be able to claim tax relief or a NICs disregard for those contracts where they are required to operate the intermediaries legislation (commonly known as IR35), or they would otherwise be operating IR35 if they weren’t receiving all their remuneration as employment income.
This will bring the treatment of their travel and subsistence in-line with that of other temporary workers and contractors, whilst ensuring that those who are not under supervision, direction or control whilst undertaking their work and who are therefore akin to the self-employed continue to be able to claim relief for their travel and subsistence as before”.