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Changes to Travel and Subsistence relief and what this means for Contractors

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As an Agency Worker working through an Umbrella Company there will be substantial changes to Travel and Subsistence relief from 6th April 2016.

Essentially this legislation is aimed at preventing workers who are engaged through an umbrella company from benefiting from relief for home-to-work travel expenses so that the tax system is fair in treating individuals working in similar circumstances in the same way.

These changes have come from the latest budget from the UK Government and are likely to have an impact on contractor’s take home pay by reducing tax relief to which you were previously entitled. I have taken a look at what these changes will mean and how this will affect you.

So who will be affected?

• 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 will not be eligible to incur tax relief on these costs.
• These restrictions will only be in place for workers who are under the Supervision, Direction or Control of their end-client and is therefore working inside IR35
• HMRC have also confirmed that workers are subject to Supervision, Direction or Control by default unless someone can prove they are not. It is important to note that proving this is not the case will be difficult.
• On average about 430,000 individuals currently employed by umbrella companies and employment agencies will be affected by these changes over the course of a year
• The impact on each contractor will vary from person to person as it will depend on the hours worked, the rate of pay, the level of expenses usually claimed and the fee charged by the company.

What can still be claimed?

Contractors will still be eligible to receive tax relief on business expenses incurred during their working day, such as travel costs / mileage between client sites and uniforms etc. Tax relief will still be given for journeys made that are essential for the duties of employment.

Important things to remember:

• It is the home to work mileage and food costs that are caught by this change so there are still business expenses that can be claimed – ask your umbrella company for the full list of what is unaffected by the change.
• Contractors working outside of IR35 will not be affected by the proposed changes so check whether you are under the Supervision, Direction and Control of your employer. Please remember that if you do go down this route that you make sure you are thorough as you and your employer would be liable if this was found to be incorrect.
• You could look at setting up your own limited company as this may be a more tax efficient option.
• Finally speak to your Umbrella company or Recruitment agency for advice on what course of action to take – they will be able to tell you how this will directly affect you and will be able to provide important information such as whether there will be a reduction in fee’s and the benefits of continuing through an Umbrella company.

If you are going to be affected by this change let us know your thoughts and whether you agree with the Government that this will be a fairer system!
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