Contractors' Questions: Will the 24-month rule catch my trip to client's HQ?

Contractor’s Question: My contract is about to be renewed and the renewal period will push me over 24 months for the contract’s total duration. My contract specifies that I am based in the London office but, in reality, I work from home 3 days a week and work 2 days a week in the office. I’ve been treating the London office as a temporary workplace and claiming travel and lunch expenses for those 2 days a week. As I understand it I can no longer claim these expenses from the point of renewal due to the 24-month rule.

However, roughly once a month I have to travel to the Manchester HQ and I re-bill the travel expenses to the client and claim these as expenses. Am I right in thinking that this will not be affected by the 24-month rule and can therefore still be claimed as expenses? Would this expense be deemed business-related travel rather than allowable for a temporary workplace?

Expert’s Answer: This is an interesting and highly topical question as the whole subject of Travelling and Subsistence is currently under close scrutiny. Traditionally, for relatively low paid contractors or those who are unsure of their long-term commitment to contracting, the traditional ‘umbrella’ offered an attractive solution to arrange their contracting affairs. As umbrella employment contracts are “over-arching”, the same 24-month Travel & Subsistence (T&S) rules can, at least at present, be applied to umbrella employees as they are applied to you as an employee of your own limited company (PSC). However, HMRC feels that this gives umbrella workers an unfair advantage (over other full time PAYE employees) and so will amend the T&S rules to “level the playing field”.

Regular full time PAYE employees cannot claim the cost of commuting to their regular workplace. As umbrella workers claim that they have no regular workplace, the cost of commuting to temporary assignments (less than 24 months) is a journey undertaken while performing their employment duties.

After extensive consultation, HMRC will introduce new regulations (effective April 2016) which will treat each assignment as a discrete assignment where “Supervision, Direction or Control (SDC)” (or the right of SDC) can be shown to be present. The default position assumed by HMRC is that SDC is present and therefore the onus is on the taxpayer to prove otherwise. If each assignment is discrete, then a claim for T&S will fail. Effectively, this will put an end to the traditional umbrella as we now know it.

So, you may ask, what is the relevance of this to you? Well, it was muted during the consultation phase of the new T&S regulations that the same SDC tests should apply to PSCs.  Perhaps due to pressure from within the industry, HMRC have decided that the new T&S rules should ONLY apply to PSCs if they fail IR35. For clarity, if you fail IR35, then you cannot claim workplace T&S.

However, even within the new regulations, where workers are required to travel, say to a temporary workplace, within a current assignment then those T&S expenses will still be allowable. So to answer your question, notwithstanding the new regulations, your occasional trips to Manchester will remain allowable, even outside the 24-month rule. But one word of caution – HMRC is currently reviewing the IR35 regulations. Do not be surprised if by April 2017 we see IR35 amended to bring the new IR35 tests in line with SDC tests, as outlined above.

The expert was Barry Roback, a director at the Anderson Group, an accountancy firm specialising in contractors' tax affairs.

Thursday 3rd March 2016