Legislation limiting tax relief for travel & subsistence Expenses

Important Change In Legislation 6th April 2016

April 4, 2016

Legislation limiting tax relief for travel & subsistence Expenses

Who is likely to be affected and how

Workers employed through an employment intermediary, such as an umbrella company and who work on a series of temporary assignments, have had the opportunity to enjoy tax relief on the travel and subsistence expenses you incur. Changes in the law from the 6th April will remove this advantage.

The Agency Legislation requires an agency or an employment intermediary to consider an individual’s self-employed status. The restrictions will apply to workers if you are deemed to be under supervision, direction and control (SDC) of another person in the manner in which they perform their duties or another person has the right to supervise, direct or control.* If this is the case then you must be placed on a payroll.

The change in the law affects all umbrella employers and their employees and there is no getting around that. The government believe that the additional tax you will pay will level the playing field between temporary workers and permanent workers. There will be a reduction in the amount of money you take home, all other things being equal, because you will be paying more in income tax and national insurance contributions (NICs)

In Brief:

  • You will be taxed on any expenses you claim after 5th April 2016 as though they were wages paid to you.
  • The new legislation comes into effect from the 6th April and most umbrella companies will be processing expenses up to and including the 5th April to be paid the following Friday.
  • You may still wish to keep details of all work related expenses you incur and supporting receipts because you may be able to obtain tax relief in relation to these if you submit a self-assessment tax return or P87 form to HMRC at the appropriate time. Tax relief will only be given if you can show that you were not supervised, directed or controlled as to the manner in which you performed your work and that no person had a right to supervise, direct or control you in this respect.
  • For those of you that do not claim expenses this change will make no difference to you.

The Finance Bill 2016, which defines the precise details of how these changes will affect contractors working via an umbrella company under a PAYE scheme has now been published and can be viewed on the gov.uk website.

All umbrella employers will be required to comply with this new law. For further clarification, please contact your umbrella company directly.

*For the purposes of the agency legislation, HMRC consider supervision, direction, and control can be defined as follows:

Supervision is someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge.

Direction is someone making a person do is/her work in a certain way by providing them with instructions, guidance, or advice as to how the work must be done. Someone providing direction will often co-ordinate the how the work is done, as it is being undertaken.

Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another.

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