Historically most contractors whether working via an umbrella company or their own limited company have been able to claim tax relief on travel and subsistence expenses incurred. A change in the rules effective from 6th April 2016 is that any worker employed through an employment intermediary such as an umbrella company, or a recruitment agency under the supervision, direction and control (SDC) of the end client are no longer able to claim tax relief on travel and subsistence expenses. Furthermore the same would apply for any contractors working via their own limited company who are deemed to be inside of IR35.
Contractors who are outside of IR35 are not affected by the recent rule change, the SDC test is not applicable to this group of contractors.
For umbrella contractors it will be automatically assumed that the contractor is subject to SDC unless the end client, intermediary or umbrella company can provide proof to the contrary. Liability for the incorrect treatment and any underpayments of tax can fall with the umbrella company, agency and end client so it is crucial the contractors position is correctly known from the outset.
This change will mean average take home pay for an umbrella contractor will fall. For these contractors it is worth considering if umbrella is still a suitable option for them and consider the alternative way of working by becoming a director of their own limited company.
If you do require further information on the benefits of contracting via your own company compared to via an umbrella please get in touch with one of our specialist contractor accountants who will be more than happy to advise further.
Our all-inclusive package for contractors is just £85 + VAT per month and includes unlimited support from your own dedicated accountant to ensure that you are operating in the most tax efficient way possible. Call us today on 0330 024 0406 to find out more.