Contractors' Questions: Is IR35 a risk due to how I’ll log expenses?

Contractor’s Question: I need to know if the way my expenses are going to be claimed during my first contract, which will be run through an agency in the UK, is going to make me vulnerable to IR35.

My contract, which I’ll mainly execute in Paris, states that the client will reimburse expenses like train/flight tickets etc, per diem. For this I have to use the client's expenses system to gain approval. Once expenses are approved by the client, I then have to use my agency’s expenses system for expenses payment processing in Euros. Am I at risk of IR35 because of this way that expenses are going to be claimed?

Expert’s Answer: Being paid an allowance to cover expenses is far from ideal as it is indicative of the way an employer may pay its employees, i.e. it is akin to scale rate payments that are designed to cover expenses incurred by employees in performing their duties.

Contrast this to what should happen in a normal commercial arrangement whereby the service provider simply re-charges disbursements to their client via an invoice.

It is however accepted that many larger organisations require contractors to 'reclaim' such expenses through their own internal systems, but usually such expenditure is specific and not simply a daily allowance. 

Hopefully, there are more persuasive factors in your favour that firmly set you apart from the end-client’s staff and that you are not subjected to any other internal rules and regulations in the same manner as those employees. If that is so, then the manner of reimbursement of expenses will take on less significance. Furthermore, if the major tests of employment status, i.e. Control and Personal Service (including Right of Substitution) are firmly weighted in your favour, then you need not be overly concerned by this one aspect of your contract alone. 

The expert was Andy Vessey, senior employment consultant at Qdos Consulting.


Thursday 30th Oct 2014
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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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