Finance bill confirms travel and subsistence restrictions
The government has published its Finance Bill, confirming a number of important amendments from the Budget and Autumn Statement.
It contains a number of important details about travel and subsistence (T&S) tax relief for contractors engaged through an employment intermediary, like an umbrella company.
Travel and subsistence
Clause 14 of the bill refers to ‘travel expenses of workers providing services through intermediaries’, detailing important changes to T&S tax relief for contractors engaged through umbrella companies.
The document includes a number of amendments, but none that were unexpected.
In the past, contractors working through umbrella companies have been able to offset ‘reasonable’ expenses like travel and accommodation against their tax bill to increase their take home pay.
The new Finance bill confirms a number of restrictions to this, particularly regarding how the new rules will be applied.
One amendment says that the ability to claim these expenses will be restricted for individuals who “provide services (which are not excluded services) to another person (the client),” and where “the services are provided not under a contract directly between the client or a person connected with the client and the worker, but under arrangements involving an employment intermediary.”
For these purposes, an ‘employment intermediary’ is defined as “a person, other than the worker or the client who carries on a business … of supplying labour.”
Given the amendment and definitions, contractors engaged through umbrella companies will no longer be able to claim for travel and subsistence expenses – unless they can show that their services do not fall under the supervision, direction and control (SDC) rule.
Another subsection in the bill says that the travel and subsistence restrictions do not apply “if it is shown that the manner in which the worker provides the services is not subject to (or to the right of) supervision, direction or control by another person.
Umbrella contractors will, therefore, only be able to continue claiming T&S tax relief if they can show that they work independently and in the absence of any SDC.
Supervision, direction and control rules - Take the SDC test
If you are unsure whether or not you will still be able to claim travel and subsistence tax relief you should apply the SDC test.
Instead of focussing on what you do, where you do it or how long you do it for, SDC is concerned with how you carry out your roles and responsibilities. HMRC guidance defines the three tests as follows:
HMRC classes a contractor as supervised when there is someone overseeing the work done – ensuring they are doing the required work correctly and to the required standard.
According to HMRC, supervision can also involve a manager offering help to the contractor in order to develop their skills.
HMRC define direction as someone making a contractor work in a certain way by providing instructions, guidance or advice. The director will often take a co-ordinating role as work is being undertaken.
According to HMRC, control is someone dictating what work a person does and how they should go about doing it. This also includes having the power to move a contractor from one job to another.
If a contractor’s role meets just one of these definitions then the new regulations state that the contractor cannot claim travel and subsistence expenses like accommodation and fuel costs.
It is worth bearing in mind, however, that SDC is usually applied on a case-by-case basis so you should talk to a qualified professional about your individual situation. For help and advice contact Umbrella.co.uk by calling: 0800 121 6513.