Being self-employed means having increased control over the vast majority of your job, which is a very attractive prospect. However, the price of this is the need to manage your own finances, including your taxes. This can be confusing at times, and the latest travel and subsistence (T&S) tax relief announcement has not helped.
Introduced as part of the Finance Bill 2016, the legislation is making its way through Parliament and it was hoped that it would provide some much-needed clarity to the tax affairs of contractors and other self-employed workers. However, the section on T&S tax relief has had to be rewritten after concerns about its wording.
Many organisations have welcomed this rewriting, including the Freelancer and Contractor Services Association (FCSA). The organisation has pointed out that the current rules are ambiguous, and could be open to abuse from certain organisations that would be able to apply for tax relief using certain loopholes.
Julia Kermode, the FCSA’s CEO, said: “From the outset we have been concerned that the travel and subsistence reforms could encourage inappropriate use of personal service companies, knowingly or unwittingly, within the supply chain. It is not surprising that the draft legislation has been amended to prevent any potential abuse or misunderstanding and we welcome the changes.”
At Brookson, we understand that this can be complicated – that’s why we have a number of helpful resources on our site to help out with tax planning – so we’ve decided to sum up these changes for you.
Travel and Subsistence – What needs rewriting?
The offending section – clause 14 of the Finance Bill 2016 – refers to T&S tax relief for people travelling from home to work. As of April 6th, this relief was no longer offered to certain contractors if they worked through an ’employment intermediary’. This could be any third party that contracts you to provide work for a different person or organisation.
For example, if you are contacted by an agency to provide work for one of their clients, and you sign a contract with the agency, they would be an employment intermediary. Limited companies, partnerships, people, umbrella companies and many other entities all count as intermediaries under these rules.
This means if you work through a third party – as many contractors or freelancers often do – you may not be able to claim travel to work on your expenses. There are some exceptions, and the clause is fairly complex, but if you work through an umbrella company, in most cases you will not be eligible for travel and subsistence tax relief. If you work through your own limited company you will only be impacted by these changes if you fail the IR35 tests.
Clause 14 is now being rewritten, as the government believes this particular piece of legislation could have “unintended consequences”. HMRC has said: “To resolve this, the legislation will be amended at the earliest opportunity.”
What’s coming next?
It is thought that HMRC’s main concern is clumsy wording over when the new regulations apply to those under what is known as the Supervision, Direction or Control (SDC) test. Put simply, if somebody supervises any aspect of your work, you could be counted as being under SDC and therefore unable to claim T&S tax relief.
The definition is fairly ambiguous, and could in principle apply to any contractor. It is hoped that the rewrite will therefore make it easier for contractors and other self-employed people to understand when exactly they can claim for travel on their expenses.
Of course, none of this is particularly clear. This is where Brookson can help. If you need more information on taxes and what you can claim on your expenses, you can contact us for advice and accounting services where we will be happy to advise you on your working options and explain how changes in legislation may affect you.