Contractors' Questions: Any status risk to using paid-for travel tickets?

Contractor’s Question: The government agency that I work on behalf of provides its staff employees an allowance whereby they receive train and bus tickets for business travel. It is now insisting that external contractors use these too. What implications will this have for me, in terms of status or otherwise, if I use the tickets, instead of purchasing them myself and then claiming back the expenses for business travel?

Expert’s Answer: It is right to query whether being paid a travel allowance along with employees of the client may be seen as the client treating the contractor as ‘part and parcel’ of the company, and therefore making it more likely that the engagement falls inside IR35. But with an opinion from a status adviser or HMRC that the engagement is in fact outside IR35, taking into account the offer of a travel allowance, if the client is willing to pay any additional sums the contractor would be entitled to invoice for it, and treat it as company income. This would have no detrimental impact on status or entitlement to claim tax relief.

There is no benefit in not taking any allowance offered if tax relief on T&S is otherwise not available, say if the contract falls inside IR35, and taking any allowance offered will bring no disadvantage when a contractor is operating well outside IR35, or alternatively is genuinely operating on a self-employed basis when operating under contract with any other intermediary. Gaining an HMRC opinion in writing to that effect, or the written opinion of a status adviser who can see both your contract and up-to-date details about your day-to-day working practices, would provide you with a real guarantee.

Lastly, bear in mind that you may hear that due to an error, HMRC made some last-minute changes to the T&S legislation. These changes impact contractors paid through employment intermediaries to a greater extent than PSC contractors, and your query of how allowances are treated for tax purposes – which mainly depends on status – will be explored in a forthcoming article of mine, exclusively for ContractorUK.

The expert was Carolyn Walsh, a director of chartered accountancy firm Andraste Accounting.