Draft Finance Bill confirms new travel and subsistence regulations

Nick Elvin

The Government has released its draft Finance Bill 2016, which includes tax legislation that will impact contractors working through umbrella companies.

From April 6 next year, those working through an umbrella company (or a personal service company if IR35 applies) will no longer be able to claim tax and national insurance relief for travel and subsistence expenses if they are under supervision, direction or control (SDC) of anyone in the supply chain while carrying out the work.

The draft bill confirms measures that were announced in this year’s Summer Budget and Autumn Statement, and the Government has now launched a consultation on the proposed legislation, which will run until February 3 prior to the bill becoming law in the new tax year.

Responding to the publication of the bill, the Freelancer & Contractor Services Association (FCSA) said the Government had not listened to widespread warnings issued by the industry.

Julia Kermode, CEO of the FCSA said the draft bill would have “a significant impact on the UK economy in both the private and public sector”, adding that 47% of supply teachers, 90% of social workers, 89% of shift doctors, 94% of locum doctors and 88% of allied health professionals will be impacted by cuts to contractors’ expenses.

“[The] announcement is disappointing and there is no question that we will see a skills shortage as fewer workers will be willing to travel for assignments,” said Kermode. “There will undoubtedly be a knock on effect and government policies that are heavily reliant on contractors will be hit – the Northern Powerhouse will suffer along with other infrastructure projects which rely on contractors. The nuclear industry will also miss out along with the public sector.

“The Government is determined to penalise the flexible workforce on which it relies to help grow and develop the UK economy. It makes no sense, but we will work with recruiters and end-clients to ensure its effective implementation in the best interests of the supply chain and the workforce as a damage limitation process.”

Chris Bryce, CEO of The Association of Independent Professionals and the Self-Employed (IPSE) said the draft legislation confirms changes to tax relief on travel and subsistence will not affect so-called “personal service companies”, unless IR35 intermediaries legislation applies. This means freelance businesses will be able to claim the tax relief, subject to future possible changes to IR35.

“We have always been clear that changes to tax relief for travel and subsistence should not penalise freelance businesses,” said Bryce. “Today’s announcement confirms that these firms will still be able to claim, as can every other business, but we need to be careful as this is very much dependent on the outcome of the Government’s IR35 review. IPSE will use its role on the IR35 Forum to seek further clarification on when and how this review will take place.”