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Under new Government measures that took effect from April 6th 2016, tax relief for home-to-work travel expenses & subsistence will not be available to contractors & other temporary workers who are subject to, or to the right of, Supervision, Direction, or Control by any person. ("SDC").
Any worker who supplies their labour via an intermediary, such as a recruitment agency, umbrella company or personal service company who falls with scope of this new legislation.
The temporary workplace travel rules currently allow temporary workers to obtain tax relief for their home to work travel provided that attendance at the workplace is for a temporary purpose and of limited duration.
As of April 6th 2016, Government have removed the ability to process tax relief on temporary workplace travel & subsistence for the workers who are subject to the supervision, direction or control as to the manner of which services are supplied
Supervision is someone overseeing a person doing the work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge.
Direction is someone making a person do his/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Someone providing direction will often coordinate how the work is done, as it being undertaken.
Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another.
Temporary workers will still be able to claim tax relief on temporary workplace travel provided that it can be proven that the worker is not caught by SDC.
Temporary workers caught by SDC will be offered alternative solutions from the Lesters portfolio to accommodate the changes.
Workers with their own limited companies (PSCs) who are outside of IR35 will not be subject to the SDC test and will still be able to claim tax relief on temporary workplace travel.
Those who operate inside of IR35 will likely to be considered caught by SDC and will not be able to claim tax relief on temporary workplace travel.
IR35 is tax legislation introduced in April 2000 designed to tax "disguised employment" at a rate similar to employment.
Where a Limited Company provides the services of it's worker to an End Hirer (or recruitment agency) and the terms are such that without the Limited Company the worker would be an employee of the End Hirer, then HMRC would consider this “disguised employment”, and as such Dividend and other payments made from the Limited Company would be subject to IR35 tax treatment.
For freelance professionals and contractors understanding your IR35 status is an important aspect of operating under a Limited Company.
Government will review IR35 during the 2016/2017 tax year, with any changes not likely to come in until April 2017.
This was welcome news from the industry as many feared that some of HMRC's suggested changes, such as using the SDC test as the sole indicator for IR35, would be introduced in April 2016. It seems that HMRC have listened to some of the concerns surrounding their suggested changes and for now at least, have held off from making changes.
We are aware that HMRC are currently reviewing its Employment Status Indicator Tool (ESI) with a view to making this a more prominent measure and to give more clarity. There are indications that this ESI tool may form part of the reform of IR35.