Travel and Subsistence - Frequently Asked Questions
Government legislation that will take effect from 6th April 2016, therefore affecting the 2016-17 tax year onwards.
What are the changes?
At the moment, contractors using their own limited companies (referred to as PSCs) or operating via another form of employment intermediary (such as an umbrella company) can claim tax relief on their home-to-work travel and subsistence (food and drink) expenses.
The Government is now introducing legislation that abolishes this tax relief for certain contractors, bringing them in line with PAYE contractors and permanent employees.
Who will be affected by the changes?
The new legislation will apply to:
- Contractors who operate via an employment intermediary who are subject to supervision, direction or control (SDC), or the right of SDC – and it will be assumed by HMRC that contractors are subject to SDC unless proven otherwise
- PSC contractors who are within IR35
PAYE contractors and PSCs outside of IR35 are unaffected by the legislation. Contractors who fall within scope but do not claim any home-to-work expenses will also be unaffected.
Expenses that are incurred during an assignment (for example, a one-off trip to a different company site) are not covered by this legislation. The change only relates to home-to-work travel and subsistence.
When are the changes coming into force?
The changes will take effect from 6th April 2016, therefore affecting the 2016-17 tax year onwards.
What does this mean for us?
Although end clients are not directly affected by any of the changes, the impact on the contractor community as a whole is significant. Primarily you can expect pay rate increase requests from affected contractors as their take-home pay after 6th April will be reduced. It is your decision whether to consider these rate increase requests; please let your main point of contact at ARM know any position you intend to take, so we can manage contractors’ expectations and communications on your behalf.
PSC contractors are already required to apply the IR35 rules for each engagement and there is no change to this process, except that those operating within IR35 will have a reduced take-home pay. ARM does not utilise CIS or LLP models of supply, so only contractors supplied via an umbrella will be affected by these changes. We operate a strict PSL for umbrella providers, all of whom are full FCSA members, so clients can be assured of their compliance with the new legislation. These providers are devising and implementing SDC ‘tests’ that will reflect the reality of the relationship between the contractor, ARM and end clients. Any changes to deductions for tax and NI will be made by them in full accordance with new tax rules.
If you utilise direct contractors, please be mindful of contractors moving to non-compliant umbrellas offering offshore payment solutions to avoid the impact of the legislation. Liability for engaging contractors via an offshore intermediary does pass directly to end clients. For more information on offshore intermediaries and how we can support with minimising your risks with direct contractors, please contact us.
Another consequence of the change is that you may receive requests from agencies and direct contractors to provide information about the nature of assignments for particular contractors in order to decide whether a contractor is subject to SDC. For contractors being supplied by ARM, we will manage the majority of these SDC queries internally and only resort to asking you for information for a small minority of cases, if at all.
Liability for any non-compliance sits primarily with the PSC or umbrella company supplying the contractor; however, clients can be held liable if they fraudulently provide incorrect information relating to SDC.