Special update March 2015 – proposed changes to travel and subsistence expenses for umbrella company contractors and contractors inside IR35.
In the 2015 budget the government announced plans to clampdown on intermediaries who allow their workers to claim tax relief on travel and subsistence expenses. But how will these changes affect contractors? Read on to find out.
In the 2014 Autumn Statement, the government expressed their concern that employment intermediaries, such as umbrella companies, are using overarching contracts, allowing their workers i.e. contractors, to benefit from claiming the cost of travel between home and work as an expense. The government has called this practice unfair because this is not a benefit available to permanent employees and should only be available to genuine self-employed workers who are taking the risks associated when working independently. Following their concerns, the government announced in the March 2015 budget that they would “level the playing field”.
Effective from April 2016: Workers employed through intermediaries such as umbrella companies or limited company directors who are working inside IR35, can no longer claim for travel and subsistence costs as expenses and incur tax relief on these costs. However, these new rules will only apply to workers who are under the direct control, supervision and direction of their end-client or are essentially working inside IR35. For more information on IR35 read our plain English guide to IR35.
Umbrella company contractors
The changes outlined in the 2015 budget will restrict the ability of umbrella company contractors to claim tax relief on travel and subsistence expenses. Previously umbrella company contractors were able to claim a limited number of expenses such as travel and equipment costs. However, under these new rules umbrella company contractors will find that their ability to claim travel and subsistence costs as tax-deductible expenses is reduced. If you would like to find out more about working through an umbrella company then you may find our guide to umbrella company services page useful.
Limited company contractors
Limited company contractors who are contracting outside of IR35 will not be affected by the government’s proposed changes to travel and subsistence expenses. However, contractors who work as directors of their own Limited company and are classed as inside IR35 will also find that they will not be able to claim tax relief on their travel and subsistence costs in the same way as they used to. To find out more visit our how to contract through your own limited company page.
So, how will these changes actually work?
The changes to travel and subsistence expenses are scheduled to come into effect from April 2016, however, the exact specifics of this change is set to become much clearer through the remainder of 2015. The example below demonstrates how we expect these changes to take effect from our current understanding:
Contractor A is working as an umbrella company contractor. Their contract is located in London and they travel there daily for work, under the proposed new rules they will not be able to claim the cost of travelling to this location as a business expense. However, if they need to travel to Manchester for a one-off business meeting, as this is not their regular place of work they will be able to claim this cost as a business expense under the new rules.
Please be aware that expense claims are often decided on a case by case basis so we would always recommend speaking to your accountant about your individual situation.
You may also find the following pages and case studies useful:
- Umbrella company services
- How does it work using an umbrella company?
- Contractor expenses using an umbrella company
- Umbrella company take home page calculator
- Permanent to contracting using an umbrella company
- Choosing an umbrella company
- How much can I earn as a contractor?
- Take home pay – Limited or umbrella
- Limited or umbrella – is it right for me?
- Choosing a company structure, Limited or umbrella?