Contractors' Questions: Can I claim tax relief on expenses and how?

Contractor’s Question: I’m contracting through an agency and although I agreed with them that I would NOT be paid expenses on travel to and from work, I’m struggling to get about £500 in expenses paid for mileage and parking.  

I’m already feeling duped as I began on one local project as a freelance for a year, but it’s turned into four different projects. I haven’t claimed for travel to and from the gigs, just from one site to the next onwards, was I correct to do this?

The set-up is that my line manager is supposed to authorise the expenses then send them to the agency. If the expenses don’t emerge soon, how would I charge interest on what I’m owed via a money claim?

Expert’s Answer: There are several different issues combining here. In terms of late payment, assuming there’s nothing in your contract about what interest rate you can charge, the government advises you should calculate it in this way.

For the travel repayments, there are two different areas at play - what your engager/end-user reimburses to you, and what you’re entitled to claim tax relief on.

What your end-user reimburses to you is a matter of agreement between you and them. If you’ve agreed that they’re not liable to pay you for travel and subsistence of any kind, then that’d be how the agreement would stand. You could re-negotiate the contract, but if you’ve agreed non-payment of these costs, then you wouldn’t be able to ask your end-user to pay them back to you.

What you may be able to do, though, is to claim tax relief on these costs.  How you do that will depend on your own business’s structure - you mention you’re a “freelance”, but how you claim tax relief, and which journeys you can claim, will depend on whether as an independent worker you’re a sole trader or working through a limited company. It’ll also depend on your contract with the agency, and whether you count as an employee of the agency’s for tax purposes. I would suggest you ask an accountant to help you with this.

As an example, if you are operating through a limited company and do not count as an employee of the agency, you’d be able to claim tax relief on travel and subsistence costs that you incur when you’re travelling to and from a ‘temporary workplace’ - which, briefly, is a workplace where you expect to spend less than 40% of your time for less than 24 months.  If you expect to spend more than 24 months at a site, even if the project actually falls short of that, you won’t be able to claim tax relief on journeys from home to that workplace because then it would count as a permanent workplace. To claim tax relief on these costs you’d add them as costs to your company’s accounts, so that they reduce your company’s corporation tax bill.

Here’s a starting point to more guidance from HMRC about permanent and temporary workplaces. Overall though, I would strongly recommend you have a chat with an accountant about what you’d be entitled to claim tax relief on and how to do so in your particular situation.

The expert was Emily Coltman FCA, chief accountant at FreeAgent, an online accountancy solution for contractors.

Tuesday 1st September 2015