Travel and subsistence expenses

** UPDATE **

In his Budget Report, presented in March 2016, George Osborne gave the following update in relation to the travel and subsistence expenses rules…

“In September 2015 the government published a discussion document aimed at modernising the tax rules for travel and subsistence (T&S).

The government has analysed responses and concluded that, although complex in parts, the current T&S rules are generally well understood and work effectively for the majority of employees and has decided not to make further changes to the T&S rules at this time.”

Below is our original article from 2015 when the team at A4C attending meetings as part of the discussion document process.


Travel and subsistence expenses

These are often claimed by employees who are required to attend a temporary place of work to perform their duties.

HMRC’s recent consultation document has been written to identify the problems this is currently causing and to outline proposed reforms.

Why the rules need to change?

  • In recent years there has been a significant increase in the number of workers eligible for Travel and subsistence tax relief, mainly due to the accelerated increase in the use of umbrella companies and Personal Service Companies (PSCs).
  • The estimated cost to parliament is around £265 million per year.
  • Use of Travel and subsistence expenses are not being used in the way they were initially intended.
  • This means that the market is distorted and certain groups of people are receiving an unintended tax advantage.


It appears that HMRC are keen to change the rules so that where an individual is providing a Personal Service through a PSC, umbrella company or recruitment agency each assignment is treated as a separate employment, this would then be classed as a permanent place of work and Travel and subsistence relief would no longer be available.

Travel and subsistence relief would still exist for those for whom it was originally intended but the tax advantage would be removed for the majority.

What is a Personal Service?

The definition of a personal service is yet to be clarified and the anticipation is that this will be a very grey area.

Supervision, Direction & Control (SDC)

Another test likely to be adopted is whether the worker is under the Supervision, Direction or Control of the end user.  The particular phrase used was:

“Over the manner in which the worker provides their services”.

This highlighted the fact that under this new definition the right to apply SDC does not need to be exercised in practice for the changes to apply, which is worrying for most contractors and is highly likely to result in a challenge over the legality of having the ‘right’ to apply SDC if not specifically outlined in a contract.

Health & Safety exceptions may cause problems

HMRC were clear to point out that they would not consider a worker under SDC of the end client if they were to comply with certain health and safety regulation.

For example an architect providing a personal service on a building site and being directed to wear a hard hat and high visibility jacket, or being supervised during a Health & Safety briefing would not necessarily be classed as ‘employed’ and therefore could still claim Travel and subsistence relief.

Interpreting what SDC actually constitutes is going to be the greatest difficulty and without a definitive list the rules will always be subject to manipulation.

Duck test

If it looks like a duck, swims like a duck and quacks like a duck, it is probably a duck…

Or at least HMRC hope that future tribunals will adopt this reasoning when determining if a worker providing a personal service is an employee or not.

Controversial areas

  • If an office building is only open 8am to 6pm is a worker under the end client’s control by being forced to work within these hours?
  • If a business has a high spec IT infrastructure where external contractors are not permitted to plug their hardware into the network does this make the worker under the end client’s direction?
  • If a project has external resource but is being managed by an internal stakeholder will this then be classed as supervising the worker’s output?

These are a few office based examples but there are many more, especially in relation to knowledge based roles, as opposed to skilled personal services.

Upstream compliance

One of the more favoured proposals in HMRC’s consultation document is the inclusion of a Transfer of Liability clause.  This will give HMRC the power to pursue the umbrella, PSC directors, recruitment agency or end client for any tax and NI deemed payable on disallowed Travel and subsistence relief.

PSC directors have been specifically highlighted to avoid companies folding and phoenix companies taking their place and the objective is to get the end client to take on the burden of responsibility.

Of course the end client is not likely to be concerned about the transfer of liability as they will require those down the chain to indemnify them against the risk.

End of the road for Umbrella Companies?

Regardless of the changes to the Travel and subsistence rules the government has implemented legislation so that from April 2016 expenses can no longer be applied if they give the worker a tax advantage.

This would suggest that umbrella companies no longer have a viable business model.

Osborne Clarke gave a presentation at the discussion event which suggested that many of these companies would make commercial changes to re-model themselves as outsourcing companies or payroll bureaus.

For example, there is an exemption in the Travel and subsistence rules where the intermediary is a professional service firm which does not substantially supply labour. This means that instead of providing workers the business will deliver a project with a fixed fee (included in which will be workers delivering services).

For example instead of providing stewards for an event or cleaners for a train the business will steward an event or clean the train.  It’s all about the small print!

In conclusion

It is clear that HMRC are cracking down on the use of umbrella companies and PSCs within the recruitment sector, this will have a substantial impact on the industry and we are expecting major changes ahead.

The market will either surrender and contractors will be forced back into permanent employment or the flexible working model will evolve and new methods will be found to ensure that the risk involved in contracting is rewarded with tax efficient gains.

Either way at A4C we’ll be on hand to give support and advice where it’s needed.

For more information please give us a call on 01737 652 852