In our Autumn Statement review we advised that the Chancellor had confirmed his intention to restrict the ability for contractors to get tax relief on travel and subsistence expenses and that the finer detail was due for release early December.
This detail has now been released and as expected, the Government's draft legislation and preliminary guidance on travel & subsistence (T&S) confirms, that "Individuals working through employment intermediaries will not be allowed to claim tax relief on their travel and subsistence (T&S) expenses, where the worker is under supervision, direction or control (SDC) in the manner in which they carry out the work."
The legislation actually goes one step further than that and prohibits T&S expenses being claimed where there is a right of SDC The problem here is that the SDC test could be used by HMRC to catch all workers, even if in practice there is no SDC, since a client will always have the right to say "build a wall there" or "create a website for my business".
Initial feedback from HMRC suggests that HMRC will look at what happens in practice rather than a theoretical or contractual right to give direction. However the fear of many legal advisors is that the promised clarity will not happen and that HMRC will leave matters deliberately vague in order to give themselves room to manoeuvre in the future. This would leave taxpayers and businesses in a completely uncertain position. Some agencies will take a 'no risk' position and say 'no T&S'. Others will be happy to confirm that no SDC exists and do their best to collate evidence to this effect.
Although it is 90% certain that the legislation will be introduced in April there is still an opportunity for contractors to make their thoughts known to their local MPs. We have seen the tax credit proposals amended at the last minute following strong campaigning from MPs and we hope for a similar result here.
Even with these changes PayStream will continue to offer Umbrella company services because they provide a valuable service to contractors even if they are captured by SDC. Some of these benefits include: ease of payment, support, continuous employment and access to statutory benefits. As stated above contractors that are not subject to SDC will still be able to claim T&S (although the way they do so will change from April 2016).
Contractors operating outside IR35 in a PSC are not affected by the changes and will continue to claim tax relief on T&S. Some agencies may prefer to work with PSCs, particularly with those who travel from site to site and incur high mileage and subsistence costs. We agree that a PSC may be the best option for career contractors and we will continue to support those contractors. For those worried about IR35 we have a free in-house IR35 review service for our PSC contractors, or those considering this option, which has been in place for many years and is run by our compliance team.
If you would like check your IR35 status and see if working through a Limited Company is a viable option for you then please contact our New Business team on firstname.lastname@example.org or via 0800 197 6516 / 0161 929 6000.