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Government announces major changes to travel and subsistence expenses for contractors

Whilst the 2015 budget expressed how the Government would be cutting down on tax reliefs for travel and subsistence expenses, until now little has been known about how these changes will affect umbrella company and limited company contractors.

However, we now know that as of the 6th of April, workers who are employed through umbrella company or limited company contractors will no longer be able to claim for travel and subsistence costs as expenses without incurring taxes.

Whilst these charges may create additional costs for workers that fall inside IR35, the new rules will not apply to workers who are employed by Personal Service Companies (PSCs), providing they fall outside of IR35.

This new set of guidelines are now placed on employees who are under the direct supervision, direction and control of an umbrella contractor or limited company contractor. With this mind, we take a look at how these new rules will affect you and your organisation.

Umbrella company contractors
The changes listed in last years’ budget will restrict umbrella company contractors from claiming tax relief on travel and subsistence expenses. Until now umbrella company contractors have been able to claim a limited amount of expenses for items such as equipment and travel costs. However, under the new rules umbrella company contractors will find their ability to claim travel and subsistence costs as tax deductible expenses reduced.

Limited company contractors
As of the 6th April, limited company contractors who are operating outside of IR35 will not be affected by the government’s new changes. However, any contractors who work as directors of their own limited company or operate within IR35 will not be able to claim tax relief on their travel and subsistence expenses.

So, how will the proposed changes work?
To give you an idea of how a typical contractor may be affected by the new changes, please see our scenario example below:

If Contractor X is working as an umbrella company contractor, their contract is located in Manchester and they travel there every day for work, under the 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 single business meeting, because this is not their regular place of work they will be entitled to claim this cost as a business expense.

Please be aware that we’d advise you to assess your expenses on a case by case basis, as each claim will depend on your circumstances. If in doubt, ensure that you contact your accountant or a member of our experienced team.

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