HMRC have amended legislation for travel and subsistence expenses to support their intentions

The introduction of the new legislative changes for contractors and the restrictions on travel and subsistence expenses has created a bit of a stir over the past couple of months. It has been brought to our attention that HMRC came across a ‘technical’ error within new section 339A when it was first released. This has resulted in Clause 14 of the Financial Bill 2016 being amended. The original clause did not reflect the announced policy at the start of the 16/17 financial tax year.

According to HMRC, “prior to this amendment, the test contained in new section 339A intended to determine whether the rules apply for personal services companies (PSCs) which are not managed services companies (MSCs) was applied to almost all employment intermediaries (including umbrella companies).”

“The effect of this was that such intermediaries, rather than simply having to consider whether a worker is under supervision, direction or control (new section 339A(3)), instead needed to consider the wider employment status case law tests. This was not the government’s intention.”

As stated by HMRC, section 339A was introduced to ITEPA to ensure the tax system provides focused relief for travel and subsistence expenses by preventing workers engaged through an employment intermediary, and their employers, from benefitting from home-to-work expenses. It is an established opinion in the UK tax system that people should not be able to claim relief on their regular commute to and from work. Therefore, this relief is not generally available to other workers.

The new section 339A changes the provisions in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), which allows deductions from earnings made for travel and subsistence expenses. The amendments only apply where a worker is engaged through an umbrella company.

The last few months in the contracting industry have been interesting. There have been rumours that some providers have been using this loophole to their advantage.

By amending the ‘technical error’ in new section 339A, the current legislation applies as intended to all workers who are subject to supervision, direction or control (SDC) and are working through an intermediary. The legislation has been re-written as it was intended and no contractors using an umbrella company are able to claim their travel and subsistence expenses if they are under SDC.

HMRC amendments have now been made and they have confirmed the changes will apply retrospectively from April 6th 2016.

If you have any questions regarding the current legislation or would like to discuss whether you fall under ‘supervision, direction or control’, please call 020 7078 0212 and speak with one of our industry experts today.