The long-awaited guidance on Supervision, Direction and Control (SDC) was published on April 6th by HMRC, which is a key concept in tax relief for Travel & Subsistence cost for workers providing their services through mediators.

With effect from 6th April 2016, the legislation was introduced such that if a worker provides his/her personal service through a mediator then SDC is assumed and such payments for T&S cannot be made tax free. Such temporary workplace provisions in these circumstances are overridden by the legislation by treating each engagement as a separate employment.

Only if it can be shown that a worker is not subject to (or the right to) SDC can T&S payments be made tax free, the burden of proof is on the person who pays the worker.

Until the guidance was published it was unclear what evidence would be required. Some agencies had hoped to rely upon regular signed statements from the worker suggesting that they were not subject to SDC.

HMRC’s guidance makes it clear that this will not be sufficient, their guidance states the following:

‘Where it is considered that the legislation doesn’t apply because the SDC test is not met and HMRC are involved in an enquiry, we’ll test evidence by examining relevant documents and gathering facts from all parties involved, which include but are not limited to the workers, agency, client(s), managers etc’.

The point to pay attention to in the above statement is ‘all parties involved’.

To continue providing tax-free payments for T&S costs to workers through an intermediary, documentary evidence needs to be gathered regularly not just from the worker themselves, but also from the intermediary, the client, any managers involved, and anyone else the worker comes into contact during their engagement.

HMRC’s requirement will prove onerous, if not impossible in most cases. What the courts will deem sufficient remains to be seen.

Personal Service Companies (PSCs) only need to consider the SDC rules if they are caught by the intermediaries’ legislation commonly known as IR35. It is therefore essential that all PSC workers carry out due diligence on their contracts and working practices to ensure they are not caught out by an unexpected tax and national insurance bill.