Contractor Travel Expenses

In this article, we concentrate on the changes made to travel- and subsistence-related costs introduced from April 2016. Umbrella Supermarket reports on:

  • The standard expenses a contractor can claim back
  • How the changes have affected what expenses contractors can claim for
  • If you can claim not to be under the supervision, direction, and control rules

What expenses can you claim through an umbrella company?

We’ve written before on the subject on umbrella contractor expenses, but the general range of expenses which contractors used to be able to claim back through an umbrella company were:

Business equipment you need for a particular contract (especially if stipulated in the T&Cs of your contract with a client)

  • Business-related phone and mobile call costs (remember to itemise these)
  • Computer software you need for a particular contract (especially if stipulated in the T&Cs of your contract with a client)
  • Congestion, toll, and parking charges associated to an allowable travel expense*
  • Costs of accommodation when you're working temporarily away from your home
  • Eye test costs (for computer related tasks)
  • Membership of or accreditation to HMRC-approved professional bodies
  • Mileage cost when fulfilling a contract*
  • Pension contributions as part of an HMRC approved scheme.
  • Printing and stationery costs.
  • Protective workwear and clothing if required by a contract
  • Relocation costs related to your contract (for example, air travel)
  • Subsistence costs when you're working temporarily away from your home*
  • Training costs so that you can successfully perform the requirements of a contractor
  • Your travel costs to and from a temporary workplace or as a part of your contract role.*

 

While most of the above remain claimable, the expenses with a star next to them have changed because of a significant amendment to the governing rules by HMRC. These expenses can now can no longer be claimed if your placement is affected by the Supervision, Direction, and Control Rules (April 2016).

An “unfair” advantage to umbrella contractors

In the Autumn statement of 2014 (also reported on BBC News), the then coalition Government expressed the belief that employment intermediaries were using contracts that allowed contractors to claim the cost of travel between their home and their place of work as an expense – a right which standard employees did not enjoy.

They stated that such concessions should only be allowed for those people who were genuinely self-employed and for whom there was a genuine financial risk in working on client contract work. This expression of belief was then followed up by an announcement in the March 2015 budget which came into law from April 2016.

The revised law stated that umbrella contractors and limited company contractors working within the scope of IR35 could no longer claim subsistence or travel expenses who were under the direction, supervision, and direct control of their end client (in essence, had they used the much-discredited CEST tool on the HMRC website, the result would have been that their engagement was within IR35).

Supervision, Direction, and Control Rules (April 2016)

The Supervision, Direction, and Control Rules (April 2016) now, in practicality, govern whether umbrella contractors and limited company contractors working within the scope of IR35 are able to make legitimate claims on travel and subsistence related expenses.

In essence under the new rules contractors can continue to claim travel and subsistence related expenses only if they are travelling to a “temporary workplace” as part of their duties (e.g. a nurse driving to a patient’s home). This mean that claiming for travel to and from a fixed client location (e.g. a nurse driving to the same hospital every day) is no longer allowed.

For a temporary work place you may claim 45p per mile for the first 10,000 miles and 25p per mile thereafter. If you are a passenger in someone else’s car travelling to a “temporary workplace”, you may claim up to 5p per mile. Public transport costs can also be claimed however you must keep the receipt for each individual part of the journey.

What if you’re not under SDC rules?

The taxman has set a very high standard for umbrella contractors who claim that they’re not covered by the supervision, direction, and control rules. Indeed, as reported by ContractorUK, HMRC will automatically consider you and your contract covered by them if you work as an umbrella contractor.

But what if you can persuade them otherwise? If you’re going to prove HMRC wrong then you’ll need to consider the following.

The 24-month rule for contractors

Traditionally HMRC classed a temporary address as somewhere that you expect to be working for less than 24 months. Anything over this time period and the location will be classified as your permanent work address.

A contractor will often take a contract for a certain amount of time and then their contract will be extended. This is good news for you - you don’t have to find a new contract. However, if the extension takes your work for the client beyond the 24-month mark, you will no longer be allowed to claim for travel expenses.

Also, if you have a 20-month contract and it gets extended by a further 12 months, you will no longer be able to claim travel expenses because you now know that your period of time with your contract customer will extend past the two year deadline.

What is your local area and a normal commute?

If the 24 month rule seemed simple, then HMRC has latterly managed to muddy the waters by focusing on a contractor’s normal commute over and above the 24 month rule.

The location of your contracts will also stop you from claiming on travel expenses. If HMRC think that the journey, or the temporary working locations you’re travelling to are too similar or even “normal” for an employee to make (e.g. commuting), they will not allow you to claim for travel expenses.

For example if you had one customer on an industrial estate for a couple of months then found another customer a couple of streets away, this will cause a problem when claiming travel expenses because, to HMRC, that “area” is your normal place of work.

This rule even applies if you have a gap in between your contracts. For your temporary workplace to count as a separate place of work, there must be a contract in between these two similar places of work, at an entirely different location.

Yet HMRC aren’t finished there. For the gap between locations to be considered long enough, HMRC use a 40% rule. This means that if you have spent more than 40% of the last 24-months at a temporary workplace/area, even if it is on a different contract, then you will not be allowed to claim for travel expenses.

Find the right umbrella company for you

There are hundreds of umbrella companies in the UK right now competing for your business but how do you sift through all of the offers to find the best one for you? The answer is compare umbrella companies online with the UK leading umbrella comparison site umbrellasupermarket.co.uk

To start your search, please click here.

Would you like more information on Contractor Travel Expenses?

Explore More Resources

Using an Umbrella Calculator

The Pros of Using an Umbrella Calculator

There are many advantages to using an umbrella calculator for contractors.

Umbrella calculators allow you to quickly compare thousands of umbrella companies across the UK, offering a clear overview of what you will receive from the company, including everything from your take-home pay, what benefits you will receive, and what services the company will offer.

To help contractors find out more, Umbrella Supermarket outlines the main benefits to using an umbrella calculator in 2021.

umbrella vs limited

Umbrella vs Limited Company: What to know when making the move this new tax year

The 6th April 2021 marked significant changes to IR35 legislation which impacted thousands of self-employed, limited company contractors operating within the private sector.

In light of the changes that have now rolled out, many limited company contractors are understandably considering their options and thinking about making the move to umbrella this new tax year.

To help make the decision that little bit easier, in this guide Umbrella Supermarket outline what contractors need to know about making the move from limited company to umbrella in 2021, to help you get on the right track.

 

umbrella company vs paye

Umbrella Company vs PAYE: What should you choose?

Umbrella company vs PAYE is a question asked by thousands of contractors.

After all, it’s a big decision to make that will have a direct impact on your contracting career and day-to-day life, so it’s not one that should be taken lightly.

To help every contractor make the right decision for them, Umbrella Supermarket has put together this insightful guide outlining the key differences between umbrella and PAYE and the advantages and drawbacks of each.

avoid ir35

How can I avoid IR35?

As a contractor, you will most likely know about IR35 and upcoming reforms from April 2021.

These changes to IR35 legislation are set to badly impact many self-employed contractors in the private sector, so thousands are understandably worried. After all, getting caught out by IR35 can mean you end up paying more in tax than you need at the same level as an employee, without receiving the benefits of being employed, such as statutory rights.

umbrella company costs

Umbrella Company Fees: How Much Should You Pay?

When deciding which umbrella company to work with, the fees they charge will inevitably play an important role in the decision-making process.

Umbrella company fees are taken directly out of the contractor’s income, so it is only natural that contractors want to ensure they are getting a fair deal.

To help contractors understand umbrella company fees, from how they are charged, what they will receive in return, and how much they should be paying, Umbrella Supermarket outlines everything there is to know about umbrella fees in this handy guide.

umbrella vs limited

Pros and Cons of Limited vs. Umbrella

Big reforms to IR35 legislation are set to come into motion from 6th April 2021 which will impact the thousands of self-employed, private-sector contractors out there.

For this reason, many of the contractors that currently operate through a limited company will be considering the umbrella company route as an alternative.

If this is true for you, it’s important to do your research to find out whether limited company vs umbrella is the best option for you in 2021.

To help make the decision that little bit easier, in this guide Umbrella Supermarket outline the key differences between limited vs umbrella, so you can get on the right track.

2021 budget

What Does the 2021 Budget Mean for Contractors?

On 3rd March 2021 Chancellor Rishi Sunak unveiled his Budget in the House of Commons, outlining the government’s tax and spending plans for the year ahead.

Sunak announced a variety of measures he will put into place to help businesses and jobs that have suffered through the pandemic, as well as outlining a plan for the long-term recovery of the economy.

However, the question many contractors will be asking is how the Budget will impact the

umbrella company

5 Benefits to Working with an Umbrella Company

Contracting through an umbrella company has become an increasingly popular option for contractors across the UK in recent years. After all, it is a route that offers contractors a range of benefits over other paths such as working through PAYE or being self-employed.

 

 

ir35 reforms

Contractor’s Guide to IR35 in 2021

From April 6th 2021, reforms to IR35 legislation will come into force, impacting the lives of thousands of self-employed contractors.

Inevitably, contractors across the UK are concerned about upcoming reforms and how these will affect them. To help, in this guide, Umbrella Supermarket look at what these changes to IR35 entail and how they might impact you as a contractor in 2021.

 

compare umbrella company fees

How to Compare Umbrella Company Fees

If you are considering joining an umbrella company in 2021, or have been contracting through one for a while and want to ensure you are getting a good deal, it is important that you know how to compare umbrella company fees.

What you pay in income tax and National Insurance will be the same regardless of which umbrella company you choose, however the fees the umbrella company charges can make a big difference to your take home pay.

At Umbrella Supermarket, we know that every contractor wants to get a fair deal. To help, we explain how umbrella company fees work and how you can compare them to find the best deal.

job retention scheme

Job Retention Scheme for Contractors in 2021

The COVID-19 pandemic has impacted workers across the UK and contractors have been no exception.

Many of the 1.77 million independent contractors have either lost work altogether or have had contracts put temporarily on hold leaving them in a tricky position.

Fortunately, many of these contractors are eligible for the government’s Job Retention Scheme otherwise known as furlough, introduced to offer financial support for businesses and workers. This has been an essential source of income for many who have lost contract work as a result of the pandemic.

As we experience a third national lockdown, the furlough scheme has now been extended until the 30th April. So, if you find yourself out of contract work or have projects on hold, Umbrella Supermarket are here to explain what the Job Retention Scheme is, how it works and what this means for contractors.