The beginning of April saw the introduction of changes to travel and subsistence expenses for some contractors. With the changes now in place, it’s important to understand what they are, and how they could affect you.
As of 6th April 2016, contractors were no longer able to claim tax relief on travel and subsistence expenses for home-to-work travel, nor were they able to disregard the National Insurance contributions (NICs) on the travel expenses they incur when there is a ‘Supervision, Direction or Control’ (SDC).
So what does this really all mean?
Previously, workers providing a personal service for a client through an employment intermediary were able to claim tax relief on the travel expenses of their daily commute.
Now however, if you’re a worker claiming tax relief on home-to-work travel through an umbrella company, and an SDC applies, your commute will start to feel heavier on your pocket as you will no longer be able to claim tax relief.
Who does it affect?
These restrictions apply to contractors employed through an employment intermediary such as an umbrella company, or a recruitment agency or an employment business.
If you travel to your client’s workplace as part of a daily commute then you will no longer be able to claim tax relief on your travel expenses.
However, if you travel to another location (where you are not contracted to work) on a one off, you will be able to claim this as a business expense as it is not the usual place of work.
These restrictions apply to those who are both subject to actual ‘Supervision, Direction or Control’ (SDC) of their client as well as those who are subject to the right to SDC.
SDC occurs if the client is able to supervise where the contractor works, direct the work with instructions or has the power to move the contractor from one job to another. Only one of these conditions has to apply for the contractor to be unable to claim home-to-work travel expenses.
If you are a contractor supplying personal services through an umbrella company, HMRC “presume” there is an SDC, and therefore you will not be able to claim travel expenses.
Why make these changes?
The object of this policy is to put permanent employees and contractors on a “level playing field”.
Umbrella companies previously were able to use overarching contracts to allow limited companies and self-employed individuals claim work-to-home travel as expenses free of tax and NICs. However, this was not a luxury afforded to permanent employees.
As a result of these changes, contractors’ take home pay is reduced unless the client is willing to increase the assignment rate or minimise loss.
If you need more advice on the April 2016 travel and subsistence changes or IR35, give us a call on 020 3355 4047. Alternatively you can leave your questions in the comment section below and we’ll get back to you!
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