It is necessary for employees or owners of limited company or personal service organizations to comprehend regulations surrounding SDC (Supervision, Direction, or Control). Unravelling what this test means can facilitate them while claiming subsistence and travel costs until the end of their contract.
Before explaining the actual meaning behind SDC, it is important to understand its relevance.
What makes Supervision, Direction, or Control test significant?
Historically, permanent workers have not been in the position to receive assistance and relief in taxation from subsistence and travel expenses. On the other hand, contractors and freelancers were at an advantage and could claim tax relief. Hence, to build an equal-opportunity ecosystem, the Finance Act 2016 initiated measures.
Who is going to be affected by the modifications?
Overall, stakeholders who would have a direct impact with these measures can be categorized into three classes: umbrella workers, agency workers, and those limited companies which have been impacted by IR35.
If you belong to any of these classes, then sadly it would not be possible for you to get tax relief for subsistence and travel expenses. If you are unsure about your status, then you can go through the SDC test to confirm your position.
What Does the SDC Test Contain?
As its name indicates, the SDC test is divided into three categories. Employees will be required to prove that their client is not supervising, directing, or controlling them—or else they would be unable to receive tax relief for subsistence and travel expenses.
- Supervision – refers to the exact magnitude of your client’s management of your work and your execution of work-related tasks in relation to client’s specifications.
- Direction – represents client’s administration to your approach in completing an assignment. It includes guidance, recommendations, and instructions which are employed to complete your work. At times, direction is related to coordination as the project continues to goes on.
- Control – signifies the amount of dictation you receive from them for your work and the methodology needed to execute it. Additionally, it may also include your flexibility in going back and forth over tasks as the priorities undergo a shift.
So how will HMRC analyze it?
HMRC is expected to oversee the test by adopting two methodologies.
- They can go over the specifics and details of your work and its tasks like how were they completed as well as the practices and approaches used to finish them. They may also collect information from any stakeholders of the contract including the agency, you, and your client.
- HMRC is also going to look over documentary evidence—this includes analyzing terms of engagement and going over entire contracts. Confirming your deliverables that you committed to provide and the conditions agreed upon by all the stakeholders would be processed in detail.
HMRC went over some standard scenarios that come within the expenses legislation so contractors could get a better understanding and become familiar with the rules.
Who to contact for consultation?
In case you have any uncertainty regarding your SDC standing, then it would be wise to have a discussion with your agency or your umbrella company. For limited company owners, it is recommended that they have a talk with an accountant.