Travel & Subsistence (T&S) - Overview

The basics of what you need to know:

As of the new tax year (6th April 2016), new restrictions will apply to the application of tax relief on travel and subsistence (T&S) expenses when the worker in question is engaged via an employment intermediary.

The restrictions revolve around the issue of employment status and state that if an individual’s working practices indicate that they are more like an employed-type worker, then access to tax relief on travel and subsistence will be denied.

Two different tests will be used to determine access to T&S relief. One is designed for umbrella company workers and uses the criteria of “supervision, direction, and control” (SDC) to determine whether a worker can gain T&S relief, and a separate test (the intermediaries legislation – IR35) will be used to determine whether a worker engaged via a PSC gets access to T&S relief.

The new restrictions will be enforced by a debt transfer model whereby either:

  • The debt will be transferred jointly and severally from the employment intermediary to its own director(s) in instances
    where there has been a conscious misapplication of the rules by the employment intermediary and the guidance of the
    engager had been ignored

OR

  • The debt will be transferred from the employment intermediary to another party (e.g. the engager) in instances where it can be shown
    that the employment intermediary has been misled by that party into believing travel and subsistence relief was allowable when in fact it was not.

Salary Sacrifice restrictions:

Also being introduced in-line with the new restrictions it will also prevent salary sacrifice schemes from offsetting the full range of business expenses incurred by a worker on an ongoing basis as part of its service. Under these new restrictions, salary sacrifice schemes will only be able to offset mileage claims on a regular basis. All other expenses will need to be offset by the worker via a self-assessment at the end of the tax year.

The combined effect of these two new restrictions for umbrella company employees

The combined effect of these two separate but interconnected restrictions is that as of 6th April 2016, umbrella company employees will no longer be able to offset their full range of expenses via the umbrella company on an ongoing basis. 
They could potentially offset mileage claims on an ongoing basis via the umbrella solution, but that’s only in scenarios where the worker is lacking SDC. Since it appears unlikely that an umbrella employee will genuinely lack SDC, in practice the umbrella will revert to a standard PAYE and any expenses that are allowable will need be offset via self-assessment at the end of the year.

Likely consequences of these new restrictions

It’s likely that the introduction of these restrictions will result in a decrease in the use of umbrella companies and a corresponding increase in the use of PSC’s (one man band Limited companies). Of course, operating as a PSC isn’t only about improving net retention; it also offers workers greater financial freedom and increased working flexibility. The PSC option will not be right for everyone, however, and for those workers that are not suited to operating their own Limited company, the umbrella solution will still remain as an outsourced employment option that will give the worker all of the security and simplicity of being an employee whilst also ensuring that all of the relevant insurance cover is in place. 

Still confused or would like to discuss further? Please do get in touch we'll happily have a chat.  

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