Umbrella company workers face travel expenses restrictions

The rules on expenses for commuting are changing.

Construction contractors who work under an umbrella company will see their travel and subsistence expenses restricted when the new tax year begins on April 6th 2016.

At present, umbrella company contractors can claim tax relief for travelling from home to work, meaning that their commuting costs can be paid as expenses and are not subject to income tax or national insurance contributions. This can result in a four-figure annual saving.

However, Chancellor George Osborne and HMRC concluded that the reliefs were being abused by contractors and umbrella companies intent on “exploiting the tax system to reduce their own costs” and have changed the regulations.

Under the new legislation, any contractor or temporary worker who is subject to “supervision, direction or control” while on site will have only the same right to travel and subsistence expenses as permanent employees. In other words, tax relief will no longer apply for normal commuting costs.

HMRC has estimated that the new expenses regime will affect 430,000 people and raise around £150 million a year, but how will it affect you?

Who is affected by the change?

The changes contained within the Finance Bill 2016 apply to workers who supply their services through an employment intermediary, such as an employment agency, umbrella company or personal service company.

In practice, construction professionals and skilled trades on temporary assignments via employment agencies have not been able to claim expenses for travelling between home and site anyway, so will not be affected by the change.

Umbrella company workers, along with contractors who work as directors of their own limited company (personal service company) and are classed as inside IR35, will be hit by the changes.

HMRC’s guidance for how the new regulations apply to site-based workers explains:

“Where they are engaged through an employment intermediary, and the manner in which they undertake their role is under the supervision, direction or control of another party, then if they are travelling to the same site for all, or almost all, of the engagement, then they generally will not receive relief for their travel costs. This is currently the case for those temporary workers engaged directly, or through an agency. Where a site-based worker is under supervision, direction or control and is employed through an employment intermediary then the site will be treated as a permanent workplace. Consequently, there will be no tax or NICs relief on travel between home and the site.”

However, workers will continue to be able to claim tax relief on costs incurred when travelling between different sites as part of the same job.

What does supervision, direction or control mean?

The key phrase in the new regulations is “supervision, direction or control” (SDC), as only contractors who work under it will lose their entitlement to tax relief for travel and subsistence. The definition is very broad and almost all construction contractors and temporary site workers will find they are covered by it.

Anyone who is told what work they have to do on site, instructed as to how to carry out their work, reports to a manager or has their work checked to ensure it is completed to a certain standard will be considered to be working under SDC. And for the purposes of clarity, all workers are considered to be under SDC unless they can demonstrate otherwise.