Travel and subsistence expenses – will you still be able to claim?

Most readers will be aware that Ltd company contractors have historically been able to claim travel and subsistence expenses for travelling to and from their place of work, thus saving both tax and NI contributions, but this changes from 6 April 2016.

 
From April, contractors working through an Intermediary (which includes Ltd companies, umbrella companies and recruitment agencies) who operate within IR35 (ie. those who are deemed to be working under the supervision, direction or control of others) will be denied these tax breaks for their home-to-work commute.

 
However, those contractors who can adequately prove they are working outside of the IR35 legislation can still claim T&S expenses, as before.

 
So – why is this?
The UK tax system has long established the fixed principle that workers are unable to claim expenses for their regular home-to-work commute, as applies for comparable permanent employees. However, as most Ltd company contractors register their home address as their permanent workplace, they have been able to legitimately claim expenses for travelling to their clients’ locations, where the work is actually completed.
The government considers this unfair – so HMRC are introducing new legislation to level the playing field. This ensures that contractors working through Intermediaries can no longer benefit from tax relief that’s unavailable to others, thus honouring the government’s commitment to a fair UK tax system.

 
When is it coming?
This new legislation will be effective as of 6th April 2016, as set out by Finance Bill 2016.

 
What’s the impact?
HMRC predict this new legislation will effect 430,000 temporary workers employed through their own Ltd companies, umbrella companies or recruitment agencies (although the extra revenue generated by HMRC is not expected to be vast).

 
How this will effect individuals is impossible to define, as this depends on many variables such as hours worked, rate of pay, level of expenses and the fees charged by an umbrella company (in fact, low paid umbrella company workers could even benefit – particularly if they’re paying a fee, but get relatively few expenses reimbursed).

 
The biggest consequence of this legislation, we believe, will be large numbers of contractors attempting to side-step the effects – by switching from umbrella companies to setting up their own Ltd companies. However, they will, of course, still have to prove they are legitimately working outside of IR35 to achieve this.

 
For more details please refer to the HMRC’s article ‘Income Tax: employment intermediaries and relief from travel and subsistence’