Dead End

The draft Finance Bill 2016 has been published and, as highlighted in our previous blog post, it takes aim at the tax treatment of travel and subsistence expenses for contractors providing services through an intermediary.

Current position

The current position allows contractors employed by an umbrella under an overarching employment contract to treat a client site as a temporary workplace, meaning that travel and subsistence expenses are an allowable deduction for PAYE and NICs purposes. Contractors providing services through a personal services company (PSC) are in a similar position.

New legislation

However, from 6 April 2016 each engagement will be considered a separate employment. The expenses will no longer be eligible for relief and any reimbursed expenses will be subject to PAYE and NICs in the hands of the intermediary. Incorrect deductions can also be transferred to the intermediary’s directors personally. It is worth noting that this rule will not apply where the engagement is carried out wholly in the client’s home, such as where a gardener attends the homes of his clients. There is also an exemption if there is no actual or right of supervision, direction or control (but this will be very rare for this category of consultant).

Where IR35 (tax legislation designed to tax ‘disguised employment’ at a rate similar to employment) does not apply to a contractor working through a PSC, the contractor can continue to claim travel and subsistence relief. If IR35 does apply, no reliefs will be available.


Where an intermediary is provided with fraudulent documents as to supervision, direction or control so that the intermediary in good faith fails to properly account for the worker’s travel and subsistence expenses through PAYE, then the party providing the fraudulent documents is responsible for accounting for the tax arising from the failure to appropriately deduct through PAYE along with any interest and penalties. HMRC can also hold the directors of the client company personally liable where the client provides the fraudulent documents.

In practice

Where an individual is employed by an umbrella company and subject to actual or the right of supervision, direction or control over his or her activities then any costs incurred in commuting to the place where they are usually engaged or in staying overnight in nearby accommodation will no longer be relieved for PAYE and NICs purposes. One off trips or overnight stays to other sites as part of the same assignment will continue to be temporary workplaces on which relief can be claimed, but the scope for this relief has been greatly narrowed.

The new provisions take a substantive approach. Any attempt to contract out of or otherwise avoid the new approach will be disregarded. These proposals represent the latest challenge for an industry which has proved incredibly adaptable over a generation, and no doubt will continue to adapt in response to this legislation.

This post was edited by Chris Thompson and Jo Symes. For more information, email

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.