From April 6th 2016, around 430,000 contractors will no longer be able to claim for travel and subsistence costs. For some contractors this will be a major blow, and could affect their ability to win contracts.
Being able to claim travel expenses as a self-employed person is often vital to making a contract cost-effective. Without being able to claim travel expenses, contractors might be limited to picking up clients closer to home – if they put up their rates to compensate for the loss in travel expenses, they may miss out on business.
As with most HMRC changes, the rules are complex and not everyone will be affected. So what exactly is happening?
Claiming self-employed travel expenses
The core policy has not changed: anyone who is self-employed is still allowed to claim tax relief for money they spending travelling to do work, and eating any meals while on the job.
Key to this is the question of who counts as self-employed. The new HMRC rules state that anyone who is under ‘Supervision, Direction or Control’ of their employer is effectively a disguised employee who cannot claim travel and subsistence expenses as a self-employed person. These SDC rules are very similar in intent to IR35 rules, but the wording is different and will potentially affect more contractors.
HMRC defines Supervision as “someone overseeing a person doing work”, Direction is “someone making a person do is/her work in a certain way” while Control is “someone dictating what work a person does and how they go about doing that work”.
Who is affected by the SDC rules?
Anyone working via an umbrella company or an employment agency will find it difficult to avoid being considered as SDC. In fact, clients will be responsible for identifying whether a contractor is subject to SDC, and HMRC says it will be assumed that workers are under SDC unless it is shown otherwise. Contractors should check that their umbrella companies have enough documentary evidence to prove to HMRC that they are not SDC.
But anyone not covered by IR35 should still be able to claim travel and subsistence – in other words, people who can show that they are genuinely self-employed contractors working through a limited company.
This means that limited company contractors need to review their contracts so that they are “SDC-proof” just as they should be doing for IR35.