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New travel and subsistence restrictions

New travel and subsistence restrictions

From 6 April 2016, there are restrictions on the allowability for tax of travel and subsistence expenses where individuals provide services through an employment intermediary. The new rules apply where personal services are provided either via a personal service company or one or more other employment intermediaries.

The effect of these new restrictions is that, where an individual personally provides services to an end client under an arrangement with an employment intermediary (e.g. an agency or personal service company), and where the engagement would have been one of employment if there was a direct contract between worker and client, tax relief is denied for travel and subsistence costs between the individual’s home and the place of engagement.

Effectively, each location at which the individual works is treated as a permanent place of work with no relief for travel and subsistence costs. For example, if an individual living in London has an engagement, via an intermediary, with a client in, say, Aberdeen for six months, then he will get no tax relief for travel costs to and from Aberdeen, nor for the cost of renting accommodation in Aberdeen. If these costs are reimbursed they will be subject to tax and NIC deductions under PAYE.

There is an error in the drafting of the legislation. It was intended that the test to apply to the arrangements would be whether the individual was subject to (or to the right of) supervision, direction or control (‘SDC’) of any person. If he was, then the restrictions applied. There was an exclusion from the SDC test for personal service companies. The effect of error is that this exclusion now applies to the vast majority of arrangements, not just those involving personal service companies. HMRC have confirmed that this error will be corrected ‘at the earliest opportunity’, probably from the start of next year (ie. 6 April 2017). The correction will not be retrospective.

What this means is that the majority of employment intermediaries will have to apply employment status tests, rather than the SDC test when deciding whether travel and subsistence costs can be paid tax-free.

If you would like further information on these new rules please contact Mark Wildi on 01689 877081

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