Previously, Umbrella company contractors were trading via a limited company within their supply chain to claim expenses such as travel and subsistence expenses for tax relief. However, this has been stopped now due to the changes made by the government. This is due to final amendments made to the Finance Bill 2016 prior to its implementation on 6 April 2016.
Changes to travel and subsistence expenses made all its liability that rests with umbrella companies. Some umbrella companies are adopting risky schemes to let them continue processing contractor expenses. Reputable umbrella companies have stopped offering T&S.
Due to new legislation introduced in April 2016, contractors who are employed via an umbrella company and considered to be under the ‘supervision, direction or control’ (SDC) of anybody else within the supply chain no longer qualify for T&S expenses tax relief. HMRC
legislation refers to SDC applying ‘as to the manner’ in which the contractor works. This implies that a contractor can be subject to supervision to some extent, provided nobody has the right to give them detailed instructions as to how to carry out a task or to move them onto other tasks not originally agreed in the contract.
The only concern is that an HMRC guideline says that the umbrella company must prove that their contractor isn’t subject to SDC before they can compliantly process their expenses. However, HMRC doesn’t mention that what evidence they will consider being persuasive.
The notable loophole in the original draft legislation of the Finance Bill 2016 concerned umbrella contractors trading via their own PSCs. Prior to the amendments, the wording in the legislation indicated that contractors who traded via a PSC and who were outside of IR35 were exempt from the T&S restrictions. The result of that, the umbrella companies would have been able to push contractors who were outside of IR35 into PSCs and resume operations, as usual, to process their T&S expenses even if they were under SDC.