Contractors get extra time in expenses probe

The probe that Budget 2017 promised into the ‘wholly, exclusively and necessarily’ test for contractor expenses has been extended.

Due to the snap election, HM Treasury said the probe would now run until now July 10th, not June 12th as originally announced in the initial call for evidence.

As that call has been renewed, contractors can still have their say on whether the rules on claimable expenses (costs they incur as part of their work), can be made simpler or clearer.

Or more up-to-date. After all, the current test that expenses are eligible if they are “wholly, exclusively and necessarily incurred in the performance of the duties” dates back to 1853.

A similar rule, currently in place on travel expenses (except these do not have to be wholly or exclusively), can be commented on too, given that the probe is general and wide-ranging.

However, the absence of firm proposals by the government does not mean that the test for expenses, or the amount of tax relief on items like mileage, will not end up being tightened.

Official figures indicate that there is an increasing amount of revenue at stake from employees’ tax reimbursements -- some £800m at the last count.

This total amount of tax relief on employees’ out of pocket expenses, cited in the Treasury’s call for evidence, is said to have shot up by a quarter in the five years to 2014-2015.

“When employers reimburse expenses, this does not need to be reported to HMRC (in effect, the expense is just ignored for tax purposes) so the government has limited data on how much the tax relief for reimbursed expenses is worth,” the department cautioned.

However, officials say that “given the significance of expenses to employers, employees and the tax system, the government wants to ensure that the rules are effective, and to understand more about why the claims for non-reimbursed expenses have increased.”

The probe follows the OTS recommending that the expenses system re-establish some general principles that align with current employment practices, but self-employed work expenses will not be considered.

May 16, 2017