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A rocky road ahead for contractors claiming tax relief on travel and subsistence costs

24 month rule

Many of you who contract will know that if you work for over two years at one particular location, you are no longer entitled to claim tax relief on travel and subsistence (basically lunch) costs. This will not affect you if you stay with a particular client for 3-6 months and then move on.

So what has changed?

HM Revenue and Customs has been grinding away at this issue for a while as they see contractors, particularly those who are under umbrella companies, as having an unfair advantage compared to employees.

So far HMRC has published two consultations (December 2014 and July 2015), both with the aim of restricting travel and subsistence costs. The latest consultation extends this restriction to those of you who operate your own limited company and fall under the definition of a personal service company (IR35).

Many contractors try and circumvent the issue of personal service by having a right of substitution clause written into their contract; actually getting another contractor to substitute you makes the case for not being a personal service company even stronger.

Travel and subsistence costs will not be entitled to tax relief if the end client confirms that they supervise, direct and control (SDC) the contractor.

Examples of where this could apply are shown in HMRC’s Employment Status Manual page esm2056 onwards.

The changes take effect very soon – from 1 April 2016, even though the outcome of the latest consultation has not been published yet.

The Institute of Chartered Accountants (ICAS) response

ICAS, of which Lothian Accounting is a member has responded to HMRC’s latest consultation. Key concerns it has raised are that:

If you would like to talk more about how the changes to and travel and subsistence relief might affect your company, please call or drop me an email.