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.

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