Contractors' Questions: Will I get expenses via a brolly or inside IR35?

Contractor’ Question: What’s the score with contractor expenses (Travel and Subsistence) since April’s new rules, as regards to inside IR35 and working through an umbrella?

I’m unclear; is it that T&S expenses are not claimable from home to the client site, but are claimable for hotel costs at the tax year-end, via self-assessment?

Umbrellas are at odds with each other: some say all expenses, including hotels, while inside IR35 are not claimable; others say hotel bills are reclaimable but just not on an ongoing basis.

Expert’s Answer: There’s some misunderstanding in your question. To realise it, you first need to look at the way in which you are engaged as a contractor with the end-client. Are you an umbrella or PSC contractor? Your answer determines which test for expenses you take.

If you work via your own PSC (Personal Service Company), then the Intermediaries legislation (IR35) will be in play and it will look at a variety of factors to determine whether you are inside or outside IR35. If you’re outside, in other words ‘not caught’ by the IR35 legislation, then you are eligible to claim T&S expenses.

If you are working via an umbrella company, then in reality IR35 does not apply as you are paid via PAYE, and so for any eligibility to expenses you must look to apply the test of ‘Supervision, Direction or Control.’

If there is an element of ‘SDC’, then categorically no expenses are allowable for tax relief purposes. However, under the legislation you refer to from April, even if there is deemed to be no SDC (which means not even the ‘right of SDC’ exists), then expenses must be claimed via self-assessment at the end of the financial year by you, the individual worker. This is because umbrella companies are now prohibited from processing ANY non-chargeable expenses at source via salary sacrifice.

Any other way of processing expenses for contractors working via an umbrella company (and we are aware of a few new schemes), would seem absurd, given the fact that we are all very aware of the clear intentions of HMRC to restrict contractors from claiming this tax relief at source.

In terms of the accommodation elements of the expenses, these are deemed to be included as part of the Travel & Subsistence rules. These are therefore claimable as long as there is a travel element involved within the claim.

So the same scenario as I previously outlined will apply; meaning that these type of expenses, such as those pertaining to a hotel stay, will now need to be applied at the end of the financial year via self-assessment providing there is no element of SDC in the assignment or exerted by “any person” in the contractual chain.

The expert was Lucy Smith, managing director of Contractor Umbrella.

Editor’s Note: Related Reading –

Contractors’ Questions: Do I test for Supervision, Direction or Control

Why clients and agents are now vital for expenses

Contractors’ Questions: Who’s liable if I claim expenses but am SDC?

Friday 30th September 2016