Last Wednesday 6th April saw the introduction of new travel and subsistence rules for umbrella company contractors. The new Regulations restrict the amount of travel and subsistence payments they can receive without incurring a tax liability on those expenses.
Historically, contractors could claim tax relief on travel and subsistence expenses for home-to-work travel costs, when permanent employees cannot, even though they may be both working for the same organisation and may have similar commuting journeys.
The government deemed that this was unfair and as a result HMRC introduced new rules specifying that workers who operate through an intermediary which could be any of the following recruitment agency, umbrella company or personal services companies would no longer be able to claim tax relief on travel and subsistence expenses if they are under the supervision, direction or control of “anyone” in the contractual chain. But, the rules also apply if anyone in that supply chain has the right to exercise that supervision, direction or control.
So, what is supervision, direction and control?
Supervision - 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. Direction - 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. Control - 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.
However, it does not end there, workers working through Personal Service Companies will only be caught by these changes if they are working inside IR35. But if they worked outside IR35 but are subsequently found to be inside IR35 they:
Will have additional tax to pay to make up the difference between PAYE and dividends, and Repay any tax relief received, and Possibly pay interest and penalties.However, it has been made clear that umbrella company workers will still be able to claim travel, subsistence and accommodation in instances where they are sent to temporary locations away from their main place of work. For example, an umbrella company worker caught by the supervision, direction and control who is based at Wolverhampton will not be able to claim expenses for travel from home to Wolverhampton but will be able to claim expenses for travel to or from a temporary location.
This is a very complex area and makes one wonder how such companies will cope
So, what guidance is there? Very little! HMRC produced a Policy Paper on 9th December 2015. With this came 16 pages of draft guidance!
