Contractors' Questions: Do I test for Supervision, Direction or Control?

Contractor’s Question: Is it the case that an employee who works at different sites and satisfies the so-called ‘24-month’ rule is still able to claim tax relief on mileage and subsistence expenses, and will not be subject to the ‘Supervision, Direction or Control’ test?

Expert’s Answer: A simple question, but not a simple answer.

It is not clear from your question exactly how you are engaged. You state that “as an employee” but unfortunately you have not elaborated, for example, of whom?

The new rules introduced in April of this year which affect the deductibility of site-based Travel and Subsistence (T&S) expenses now differentiate between the tax treatment for an employee of an “employment intermediary” (i.e. umbrella, etc.) and an employee of a Personal Service Company (PSC). Your question does not make it clear in which category you fall into.

If you are the former, i.e. an umbrella employee, then before you apply the 24-month rule, you must first pass the new ‘Supervision, Direction or Control’ (SDC) test - and if we are to accept what HMRC is indicating within its guidance on this matter, then very few contractors employed by an umbrella will pass the SDC test. The Revenue has stated unequivocally that they believe all umbrella contractors are caught by SDC – unless it can be PROVEN that this is not the case. Even though this stance has yet to be challenged in court, few (if any) umbrellas are willing to take a chance. The key here is that if SDC does apply, then each assignment will be treated as a separate engagement and, as a consequence, will FAIL the 24-month rule

On the other hand, if you are employed by your own PSC then the new SDC rules ONLY apply if the engagement is considered to be caught by IR35. If caught by IR35, then SDC applies and the 24-month rule will also FAIL. Do remember that IR35 applies separately to each and every engagement – and NOT to your company as a whole. So it is quite possible that during the course of a financial year, you are engaged in contracts that are both caught and outside of IR35.

The expert was Barry Roback FCA, a director of Anderson Group, an accountancy firm specialising in contractors’ tax affairs.