Following a year of alleged “consultation” just one paragraph in the Budget 2016 Red Book that confirms the Government’s intention to restrict the availability of tax relief for travel and subsistence expenses where services are provided through an employment intermediary, generally regarded as recruitment agencies, umbrella companies and PSCs. Here’s the solitary paragraph:
2.39 Employment intermediaries and relief for travel and subsistence – As announced at March Budget 2015, the government will introduce legislation in Finance Bill 2016 to restrict tax relief for home to work travel and subsistence expenses for workers engaged through an employment intermediary. This will bring the rules into line with those that apply to employees. (Finance Bill 2016)
Having had a year to think about it, talk about it and eventually draft the legislation you might think that HMRC were ready to issue guidance notes but we are still awaiting the examples etc. that would add clarity to this new situation. So, at this stage, we can do no more than base our advice on exchanges that we’ve had with HMRC during recent months.
From 6th April 2016, HMRC will assume that if you provide your services through an employment intermediary then you are subject to supervision, direction or control, (SDC), or the right of SDC, and each engagement will be treated as a separate employment and each workplace will be regarded as a “permanent” workplace. Hence travel between your home and the workplace is regarded as ordinary commuting and any travel costs do not attract tax relief.
If you consider that you are not subject to SDC, or the right of, then our suggestion to you is that you will need to appeal against HMRC’s assumption and we would certainly be interested in hearing the outcome of your appeal.
For some of you it will be business as usual, for example if the 24 Month Rule applies in your case. I also have agreement from HMRC that if your agency/client is merely reimbursing allowable expenses then we can process those expenses to you free of tax and NICs because there is no element of salary sacrifice.
Contractor Questions Answered
Q: Can I just be clear that I have understood this correctly, that chargeable expenses can continue to be paid without removal of tax & NI?
A: Your understanding is correct, as long as the chargeable, allowable expenses are simply reimbursement of actual expenditure incurred then those expenses can be paid to you free of income tax and National Insurance contributions.
Q: What does the 24 month rule mean, per your earlier email? My contract is for three months initially, and the client does not reimburse my travel. If the client did reimburse travel, would they do this at the 25/45p rate or reimburse fuel receipts as incurred? Then I assume the invoiced amount would be the net of the gross day rate and expenses reimbursed? Under these circumstances would the 24 Month Rule apply?
A: In general terms the 24 Month Rule provided that when you have been at the same site for a period of 24 months or you know that your assignment at that site will extend to a period of 24 months you are no longer permitted to claim travel, subsistence or accommodation expenses. After 06/04/2016 each workplace will be regarded as “permanent” for tax purposes so the 24 Month Rule will become redundant. If your client were to pay you chargeable expenses in respect of travel between your home and your workplace then those chargeable expenses would be subject to income tax and National Insurance Contributions.
Q: Thank you for clarifying this point for us. My travel costs are £742.90 per month, (totaling £9,657.70 pa if I work for all 52 weeks). Is there anything I can do to still claim this? Are limited companies also subjected to this ban on travel tax relief?
A: From 06/04/2016 HMRC regard your workplace as "permanent" and travel between your home and the workplace is regarded as ordinary commuting and any travel costs do not attract tax relief. The legislation is yet to be published but during the last year it has been clear that the same rules would apply to directors of PSCs unless the director could prove that IR35 did not apply to assignments. There has been recent comment from the Treasury indicating that when published the legislation would include provisions to prevent the organised misuse of Personal Service Companies in order to avoid the restrictions.
Q: Thank you for your message, I have already raised this with my local MP around my personal circumstances and they have said that they will take this forward as they believe I should not be negatively impacted due to the armed forces covenant. Do you have any other suggestions for me?
A: I wish your MP well because HMRC and the Government seem to be taking up a very entrenched position on this issue. Please let me know the outcome of any approach.
Q: Can you confirm EXACTLY when the expenses will stop. In particular: does it relate to the actual days physical worked or is it related in some way to the invoicing / payment times? Similarly: as 6th April is a Wednesday, how will T&S be handled for that week.
A: The new rules apply from 06/04/2016 so you should restrict expense claims to amounts incurred and attributable to the period up to and including 05/04/2016. HMRC have now clarified that expenses can be claimed up until the 5th April 2016, however the umbrella company will not be able to process payments for these after the 6th and as such the contractor will need to claim these back via Self-Assessment.