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Travel and Subsistence Changes – What Does it Mean?

Recently proposed travel & subsistence changes reinforce the importance of IR35 compliance.

Ahead of the autumn statement, contractors were wary of George Osbourne’s plans for the LTD company worker, and many had reservations of the future of such a lucrative industry. Following the statement itself however, the Revenue’s approach to contractors was not the knee jerk reaction that some had feared, and only minor changes were proposed surrounding amendments to tax relief on travel and subsistence.

Draft legislation was published today around the claiming of travel and subsistence (T&S) expenses for contractors (both umbrella and ltd company) and if accepted by parliament, is set to come into force on 6th April next year.

From 6th April 2016, limited company contractors should not claim travel & subsistence if they are inside IR35.

Most contractors will claim T&S through their company. Every day things such as mileage, hotels, train tickets and meals can make up a significant sum of expense claims, and contractors will benefit from tax relief on these expenses meaning that this could make a vast difference to a limited company’s bottom line. A contractor who had £10k of expenses for example, wouldn’t pay corporation tax on that amount.

You can see all the documentation here, but a very brief overview is as follows:

  • From 6th April 2016, limited company contractors should not claim travel & subsistence if they are inside IR35
  • If someone has been incorrectly claiming T&S, HMRC will reclassify the amounts as income and they’ll need to pay tax on it (probably around 46%)
  • If there’s an IR35 enquiry and someone is found to be caught, HMRC will demand any T&S liability in addition to the standard IR35 liabilities
  • Umbrella companies won’t be able to claim T&S for their employees (contractors) if they are subject to the supervision, direction or control of anyone. This may result in a lot of people flooding out of umbrellas into ltd companies
  • There is a potential debt transfer to agencies. If someone in the contractual chain (i.e. an agency) has produced a ‘false document’ (i.e. a contract) which causes a contractor to incorrectly claim T&S expenses, the liabilities could be passed to them

These proposed changes, albeit minor compared to what many contractors feared, does reinforce the need for IR35 compliance.

QAccounting specialises in tax efficiency, and IR35 remains a hugely important aspect for contractors who want to ensure that they are operating as cost effectively as possible. We advise that anyone who is concerned about their tax status contacts QAccounting immediately. We provide everything from informal taxation support, to IR35 compliance checks on written contracts, and can provide in-depth representation and defense.