April 2016- Changes to Travel & Subsistence

Travel & Subsistence relief for contractors is due to be restricted if their end-user supervises, directs and controls them, according to the Budget 2015.

This means that tax relief for work-to-home travel expenses will no longer be available to umbrella or limited company workers if there is ‘SDC’ (Supervision, Direction or Control) of a person, according to pages 61-62 of the latest budget.

Addressing the House of Commons in his Budget Speech Chancellor George Osborne said: “We will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed.”

The new rules are expected to come into effect for the tax year commencing 6 April 2016, following a consultation period, but how will they affect you? Let’s look at the new rules and what this actually means for contractors of both umbrella and limited companies.

The Background

On 16 April 2014, the HMRC published a document called “Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses” and this outlined the coalition Government’s plans to clampdown on the misuse of travel and subsistence rules.

The practice is believed to have been carried out by a small number of umbrella companies that used overarching employment contracts to provide contractors with tax relief for their work to home travel expenses – a practice that is not available to permanent employees and should be the right of those truly self-employed individuals that are taking the risks associated when working independently.

The new rules

As of 6 April 2016, any worker employed through an umbrella company or a limited company director working inside IR35 can no longer claim for travel and subsistence costs such as expenses and incur tax relief on these costs.

These restrictions will only be in place for workers who are under the SDC of their end-client, or are essentially working inside IR35. For more information on IR35, please Click Here.

Contractors working outside of IR35 will not be affected by the proposed changes. However, limited company directors, which are already deemed ‘caught’ by IR35, will not be able to claim tax relief on their expenses in the same way as they have previously done.

What does Supervision, Direction and Control actually mean?

HMRC has brought in a new regulation from April 6th 2016, where contractors who are supervised, directed or controlled (SDC) by their agency or end client are not allowed to claim travel and subsistence. Its important for us to make sure our clients comply with this regulation, or there can be dire consequences like HMRC penalising the clients, expenses claimed will have to be reported on the Self-assessment which would result in additional tax burden and hassle for the clients.

There are three ways to find out if SDC applies:

  1. Contract Review
  2. Check with our client if working arrangements are such that there is no SDC
  3. Written confirmation from clients agency/end client on SDC

Please note that even if one out of Supervision, Direction or Control is applicable then the client cannot claim T&S.

To answer that question accurately, we need to look at what HMRC says that Supervision, Direction, Control entails. The below definitions are largely taken from HMRC’s guidance.

Supervision (S)

For you, the contractor, to be subject to supervision there must be someone overseeing you as you are doing work. You are supervised if the person overseeing you is making sure that you are doing the work that you are contractually required to do; this ‘overseer’ is checking that your work is being done correctly and to the required standard. In addition, if this overseer (or another person) helps you in order to develop your skills and knowledge, you can also be under supervision.

Direction (D)

For you, the contractor, to be subject to direction there is someone making you do your work in a certain way. This ‘director’ achieves this by giving you instructions, guidelines or advice as to how the work must be performed. In addition, this director might co-ordinate the ‘how’ the work is done, as it is being carried out.

Control (C)

For you, the contractor, to be subject to control there is someone dictating to you what work you undertake and how you go about undertaking it. In addition, you are controlled if someone has the power to move you from one job to another. (Guidance on mitigating this aspect of control is given below in the section entitled ‘Steps you can take to stop SDC’).

Three ways the Revenue raises the SDC hurdle

These three definitions are only half the battle however, because there are three ways that HMRC makes the SDC test harder to pass:

  1. Any person – not just an end-user – can subject you to SDC for you to fail the test
  2. Any person merely has to have ‘the right of’ SDC over you for you to fail the test (in other words, SDC doesn’t have to be exercised – it just has to be present)
  3. The test uses ‘or’ not ‘and,’ so you don’t have to supervised, directedand controlled to fail the test; just one of them being present is sufficient for you to fail the test.

‘DSC’: Despondency, Simplicity, Clarity

These three twists in the legislation appear to have made some contractors despondent, as have the very broad comments made by HMRC in the (now closed) consultation document on SDC. In particular, HMRC claims: “Where there are procedures, methods and instructions which must be followed, it is likely there will be SDC over the manner in which the services are provided.”

However, this is all too simplistic a view. Merely by giving a brief to a worker is not sufficient ground for the provider of the brief to be exerting SDC over the worker, as held in Staples V Secretary of State for Social Services. Additional case law that sheds light on SDC is explored in the sub-section, below, entitled Historical. But before getting overly despondent, it must also be remembered that HMRC have asked for comments about the definitions of SDC that they have provided. Moreover, in the consultation on SDC, HMRC makes it very clear that the overall worker’s arrangements require a review of both the contractual and actual working arrangements, just like IR35. This clarity is to be welcomed.

Steps you can take to stop SDC


Where a contractor has never been subjected to SDC during their engagement, the contract takes on more significance in ensuring that it addresses the right of control at both lower and upper levels of the chain. Of course in the majority of cases, the contractor will not be privy to the upper level contract because of its confidential nature.

It is therefore of vital importance that the contractor insists that the agency insert a clause in the lower level contract that confirms that all contractual provisions are mirrored in the upper level contract, and that the contractor is entitled to sue where this is not borne out. It would have to fall to a legal expert to comment on the practicality or real-world possibility of this latter point but, as status experts, we recommend it.


What contractors then need is a SDC-specific ‘Confirmation of Arrangements’ document, as this is going to play a key role in verifying the matter of SDC on a practical level. Aimed at keeping SDC at bay by outlining how the features of SDC are not present, this CoA document should be completed and signed by contractor, end-client and recruitment agency. (We are developing such a document for future use by contractors and in support of its own insurance).

Other useful documents to be included and retained in both an ‘anti-SDC’ kit which will also double as an ‘anti-IR35’ dossier would be e-mail exchanges between you and the client which describe urgent services requested of you, the contractor, where those services are not defined in the contract and where it has not been possible to draw up a separate contract in time. This will help demonstrate that the contractor cannot be moved around at will by the end client, as referred to earlier. Contractors should also try to retain any documents that describe and detail the end-client’s specifications and requirements of the services to be rendered, where possible. Have one of these anti-SDC kits (the contents of which can also form an anti-IR35 dossier) for every contract you execute.


If you want to fork out to get yourself a reactive layer of defence if either SDC or IR35 bites, then consider insurance. At the least, checking existing insurances is a must-do, because any HMRC inquiry based on the proposed withdrawal of tax relief on expenses for SDC contractors will, technically, be a PAYE investigation.


Lastly, but equally as important for peace of mind, familiarise yourself with case law. There’s fortunately quite a bit to help demonstrate that highly skilled contractors, specialising in their chosen field, are rarely controlled in the manner of SDC that HMRC is proposing

In Morren v Swinton & Pendlebury Council for example, the judge considered that when dealing with a professional man or a man of some particular skill and experience, ‘supervision and control’ was of little use as a test. Indeed, HMRC’s own ESM7025 manual admits, “control over how a job is done can only be exercised where there is scope for it.”

More recently, in 2011, there were a number of tax tribunal cases that involved the control test. In Marlen Ltd, a Mr Hughes (a contractor) at JCB was briefed by a project manager who would outline exactly what was to be built. JCB’s engineering manager said that a contractor would be under the control of project leaders who would brief the contractor.

But the reality was that the only form of control was overseeing the project and checking on progress. Mr Hughes had to report daily and took instructions from senior designers as to what they wanted. He was just working on only a small part of a project and his work had to be co-ordinated and fitted into the greater whole for it to be viable. This could only be achieved by reasonably rigorous direction and supervision by senior management. The degree of control exercised, therefore, has to be looked at in the context of what is being done and what is being produced. Outcome of the Marlen case: HMRC lost.

And in Primary Path Ltd, the judge reiterated that the question of control is problematic in the case of a person who is engaged for his specialist skills. A Mr Winfield was hired for his expertise to be part of a team for a particular project, and subject only to such supervision and direction as was necessary, for and in the course of the management of the project as a whole he was left to do the work as he saw fit. The level of control or supervision exercised, therefore, did not go beyond that which one would expect in the hiring of an independent contractor. Outcome of the Primary Path case: HMRC lost.

Taxman can’t be a law unto himself

It should be pointed out that tax tribunal cases do not set legal precedence. However they do offer a very useful signpost as to how the courts interpret the subject of control, which is intrinsic to SDC. The concern, of course, from many quarters revolves around how HMRC is going to interpret SDC, but the fact is that the department cannot do this simply to suit its own cause as the courts will not permit it.

For advice and information on the best way to plan speak to a specialist accountant who will help you to be prepared. Call our team today on 02030049303 or write us at contactnexa@nexa-accountants.co.uk.

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