Contractors’ Questions: If IR35 applies, do T&S rules disallow expenses?

Contractor’s Question: I have a 10-month contract with the MoD in Wiltshire but live at the other end of England, in Northumberland. I will fly home at weekends. IR35 applies and I’ll use an umbrella company. Can I claim the air fare and hotel costs to my temporary location?

Expert’s Answer: First of all, let’s clarify that the IR35 legislation is not applicable to the work you undertake via the umbrella company for the purposes of expenses. The legislation surrounding expenses is covered under the Travel & Subsistence (T&S) legislation and refers to the specifics (in the loosest of terms) of Supervision, Direction or Control (SDC), or the right thereof. 

In April 2016, the ability for an umbrella company to provide tax relief on expenses at source, via salary-sacrifice was removed, and if a contractor could prove they were not under SDC, then the only alternative for them was -- is -- to claim the expenses via self-assessment.

In your case, you mention that your assignment falls inside IR35. Looking at the legislation in more depth, it would lead me to conclude that if you are effectively deemed as “employed” for tax purposes, which appears to be the intention of the legislation, then you would more than likely fall under SDC. You can read more about SDC and the T&S legislation in the government’s words here. But for you, we’ve gone one better. In fact, I put my theory about your working status/practice and whether it is caught by the T&S rules directly to HMRC. Their Employment Status spokesperson responded as follows:

“I think it most likely that someone would be subject to SDC if they are deemed to be within IR35 or the new Chapter 10 for off-payrolling in the public sector. I suppose that it is possible, that this is not the case, but highly unlikely.”

The final piece of advice we can provide (and perhaps our best advice overall in your circumstance), is for you to put your suggestion of chargeable expenses to the client, to see if they would be prepared to cover some of these costs. It is worth noting however, that if these are seen to cover home-to-work expenses, as you suggest, then these will have to be taxed alongside your salary. Best of luck!

The expert was Lucy Smith, managing director of ContractorUmbrella.