As of 6 April 2016, any worker employed through an umbrella company or a limited company director working inside IR35 can no longer claim for travel and subsistence costs as expenses and incur tax relief on work to home travel. These restrictions will only be in place for Umbrella Company workers who are under the supervision, direct or control (SDC) of their end-client, or are essentially working inside IR35.
In simpler terms, what this means is that contractors under HMRC’s new tax rules will not be able to offset their accommodation and fuel expenses against their income, which could result in them paying more in tax. However, 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 e.g. site visits or home visits to patients etc.
These changes were first announced in the 2015 budget, in which the government announced its plans to clampdown on intermediaries who abused the system. The relief was not afforded to permanent employees, and this was highlighted as unfair in the Autumn Statement of 2014. The legislation is now coming into force this week with the aim of putting contractors on a level playing field with permanent workers.
Limited company contractors who are contracting outside of IR35 will not be affected but the government’s changes. However, contractors who work as directors of their own Limited Company and are classed as inside IR35 will find they will not be able to claim tax relief in the same way as they previously have done.
HMRC classes a contractor as supervised when there is someone overseeing the work done, ensuring it is being performed correctly and up to standard. Supervision can also involve a manager offering to help the contractor develop their skills.
Direction is defined by HMRC as making a contractor work a certain way while providing instructions, guidance or advice.
Control, according to HMRC, is someone dictating what work a person does and how they should go about doing it. It also includes having the power to move a contractor from one site to another.
If you are a Limited Company contractor or Umbrella Company contractor and your role meets one of the above HMRC definitions, chances are you will not be able to claim travel and subsistence expenses such as accommodation and fuel costs.
Expense claims will be decided on a case by case basis, so we recommend if in doubt, please speak to a qualified professional, such as your accountant, about your individual situation.
