Travel & Subsistence Legislation

What is the T&S legislation and who does it affect?

On 6th April 2016 the Government introduced new legislation which imposed restrictions on a worker's ability to get tax relief on his/her travel and subsistence costs unless it can be shown that the worker is not under the supervision, direction or control (SDC) of either the client, the agency or PayStream in the way he/she carries out work.

This new legislation affects all agency and umbrella workers. Those working through Personal Services Companies (PSCs) are not affected by the change providing they fall outside of IR35.

HMRC has stated that it will assume that all agency and umbrella workers are subject to SDC unless the agency or umbrella company has gathered evidence to the contrary.

So, if the agency or the umbrella company gather enough evidence to prove to HMRC that there is no SDC, it will still be possible for some agency and umbrella workers to continue to claim travel and subsistence expenses although the process for doing so may change.

What is Supervision, Direction and Control?

HMRC says Supervision is someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person, where appropriate, in order to develop their skills and knowledge.

PayStream note: a client checking, at the end of a job, that it has been carried out properly will not, on its own, amount to supervision.

HMRC says Direction is someone making a person do his/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Someone providing direction will often coordinate how the work is done, as it is being undertaken.

PayStream note: if your contractor has an expertise that the client does not, it is unlikely that the client will be able to direct them as to how to do their job.

HMRC says Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another.

PayStream note: if your contractors are filling in for a full time employee who is sick or on leave it is likely that they will be subject to SDC.

Important considerations regarding SDC

SDC over where the work is done, what is to be done and when it is to be done does not mean your contractors will necessarily be caught by the legislation; what is important is whether there is SDC over HOW the work is done.

To determine if SDC applies, HMRC will look at:

  • the terms of engagement i.e. what has contractually been agreed;
  • the way the work has been or is actually done.

New world umbrella models

We have consulted with our legal team and have chosen to work with the following three umbrella company models.

  • Employment model: Suitable for those contractors under SDC it provides the benefits of continuous employment, access to statutory benefits, comprehensive insurance cover, access to an in-house IFA, advances etc. Other none T&S expenses (mobile) can be claimed through a P87.
  • Mileage only umbrella: Suitable for contractors not under SDC. Mileage is relieved on an on-going basis in line with HMRC approved mileage rates. Other expenses captured on mobile apps or in our portal can be claimed via a P87 (under £2,500) or by completing a Self-Assessment return.
  • Fixed expense umbrella: Suitable for contractors not under SDC. A fixed expense pot is agreed at the outset of employment and remains unchanged for the duration of that worker’s employment. An important thing to note with this model is that the surplus expenses in the pot are lost when a worker leaves. These cannot be paid to the worker, even as taxed employment income since this will breach salary sacrifice.

Risk and debt transfer

If a contractor is found to be claiming T&S expenses in an umbrella company model where they are under SDC it is the employment intermediary operating the T&S scheme that is primarily liable if there is SDC or the right thereof. This means that umbrella companies need to ensure that they are carrying out thorough SDC tests and gathering substantial information in order to satisfy HMRC that there is no SDC.

It should however be noted that liability may fall on the agency and/or the client where "fraudulent documents" have been provided saying there is no SDC. Although fraud will be very difficult for HMRC to prove it is not difficult to see them taking the point when all of an agency's workers are stated to be outside SDC.

PayStream's advice to Agencies

There will no doubt be some umbrella companies that suggest a solution where all workers can claim T&S - this may be insurance backed (read the small print) or backed by an indemnity (worthless when you do the maths). We should not forget that it is these sort of companies that have brought the spotlight on the industry.

We have spoken to many of our agency partners who all understand that, in the new world, we will need to work closer together. We fully expect and encourage agencies to review their PSLs and for agencies to work only with those providers they can trust to operate within the new rules, particularly bearing in mind the debt transfer risks.

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