Contractors' Questions: Any travel expenses as a brolly on a job inside IR35?

Contractor’s Question: I've started contracting due to difficulty finding a full-time IT admin role, and have been offered a contract by a local authority.

Less positively, the role is inside IR35 and despite having a PSC, the ‘option’ given to me is to use an umbrella company. But the authority is not local to me, it’s 80 miles away. Worse still, the ‘SDC’ rule looks like it will prohibit travel expenses. What can I do to make this gig worthwhile? And don’t say ‘get another contract,’ -- I’ve been on the bench since July!

Expert’s Answer: When the T&S legislation was introduced it was easy to see how SDC could confuse matters, so we put this to our legal team. Their immediate response was that the definition is completely subjective and could be argued either way if taken to a court.

You may be interested to know that there are many companies who have suggested they can put contractors through an SDC test to ascertain their status, but this doesn’t guarantee any protection or the ability to claim these expenses at source via the umbrella company.

The legislative changes introduced in April 2016 restrict contractors claiming Travel & Subsistence (T&S) expenses unless they can prove that they are not under the ‘Supervision, Direction or Control’ (or the right thereof) from the end-client (or any other party in the contractual chain).

Our recommendation is that if you believe you are not under Supervision, Direction or Control, then you should speak directly with HMRC to allow them to confirm your individual status. Provide the department your job specification and your over-arching contract of employment. If you receive confirmation in writing from HMRC that you are not SDC, then you should be able to claim the tax relief via self assessment at the end of the financial year. 

However, please be aware that it is also our interpretation that if you are deemed inside IR35 due to the public sector off-payroll rule changes effective since April 2017, then we believe that the legislation is highly likely to deem that you are under SDC, and as such no expenses will be allowable at all.

For contractors caught inside IR35 and being asked to use an umbrella company, there are only a few options;

  • Look for an increased rate from the end-client to help cover expenses wherever possible
  • Ask for chargeable expenses that the end-client will reimburse you for in full (please be aware that if these are the home-to-work and subsistence, then these will be taxed by the umbrella before you receive payment)
  • Look for work closer to home -- clearly from your question this is not the answer you want to read -- my apologies -- but in light of the changes this should be a consideration for you, if the first two options are not feasible

Please also remember that if you are able to operate via your ‘Ltd’ company for any work undertaken inside IR35, then you will be in the same situation, in that T&S expenses would still be disallowed by HMRC as a ‘deemed employee.’

The expert was Lucy Smith, managing director of ContractorUmbrella.

Editor’s Note: Related –

HMRC hands contractors IR35 scenarios on ‘SDC

Why clients and agents are now vital for expenses

Contractors’ Questions: How to prove I’m not Supervised, Directed or Controlled?

Sunday 17th Sep 2017
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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