The off-payroll rules apply to the services provided to one of your customers. Not only is it deducting tax and NI from your fees but also to the travel expenses it reimburses. Can this be right?
Off-payroll work expenses
The so-called off-payroll rules apply if you provide your services through an intermediary, e.g. your own personal service company, to a client. If your client is a medium or large organisation, they must decide your employment status. This means where your client decides you’re an off-payroll worker they deduct income tax and NI contributions from the fees you charge them for your work.
Tip. You’re allowed to claim tax relief for certain job expenses which are permitted under the usual rules for employees. These reduce the tax and sometimes NI you have to pay. The bad news is that the cost of travelling to and from home and your client’s premises is not an allowable expense even where it would be if you were a regular employee.
Example. Z works through his PSC Z Ltd. Z Ltd invoices the client for £7,200 per month (including £1,200 VAT). Z has expenses of £350 per month, which Z Ltd pays. £100 covers commuting to his permanent workplace for the engagement. HMRC won’t allow these, so only £250 gets deducted from the deemed payment calculation. £250 is what would be allowable if Z was actually employed by the hirer/client. Payment net of VAT is £6,000. The client deducts eligible expenses (£250). The deemed direct payment is £5,750. This is the amount chargeable to PAYE and NI.
Tip. If you invoice your client for the cost of travel from your home to the place you carry out the work, your client must treat it as money from which it deducts tax and NI.
Tougher rules
Your chance of getting tax relief for travel and subsistence has been made more difficult since the rules changed in 2016. The changes bite when you personally provide services through an intermediary such as a company in which you own or control 5% or more of the share capital, partnership or agency and you are under the “supervision, direction or control” of someone else in the labour supply chain, e.g. the client you are working for.
Trap. Check the small print in your contract with your client or agency carefully. If it says that you’re not working under supervision, direction or control, it could be a warning sign that whoever drafted it is trying to dodge the rules. The bad news is that HMRC will always look at what happens in practice and not just what’s written in the contract.
Allowable expenses?
You can still get a tax deduction for expenses other than home-to-client travel if they would be allowed if you worked directly for your client instead of through an intermediary. For example, for travel costs relating to other places you visit on behalf of your client as long as the other place doesn’t count as a permanent workplace. So, if you live in Penzance and usually travel to your client’s office in Falmouth, no travel expenses are allowed. But if your client asks you to travel temporarily to Plymouth, you’re in with a chance.
Tip. There are specific tests used to determine if a workplace is temporary. Broadly, they say that travel must be for a task of limited duration or for a temporary purpose, that is one not scheduled to and which does not last more than 24 months.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.