T&S Legislation 2016 – how does it affect Personal Service Companies?

The amendments to Travel & Subsistence legislation by the introduction of the two new sections 339A and 688B to the Income Tax Earning & Pensions Act (ITEPA) will come into effect from April 2016. The change will prevent any workers working through an intermediary such as an Umbrella company, Personal Service Company or a Recruitment Agency from claiming expenses incurred towards normal commuting to work to reduce the taxable income.

While the eligibility criteria for Umbrella workers is based on SDC, when it comes to Personal Service Companies HMRC will rely on Intermediaries Regulation IR35 – at least for now, while the IR35 itself is being reviewed, amended and re-legislated.

So as it is stated on the draft legislation, from April 2016, a worker providing his/her services through a personal company can continue to claim travel & subsistence expenses as long as the contract with the client doesn’t fall under IR35.

Who is Liable?

End clients or Agencies will have to make sure that the PSCs they contract with don’t have to operate under IR35. However, it will be the contractors who own the PSC that will have to prove that their contracts do not fall under IR35. HMRC is said to be developing a new on-line ESI (Employment Status Indicator) Test, which the PSCs must use to test its status. Failure to do so will implicate the PSC and its directors with the liability for un-paid tax and NI if they have claimed T&S besides other implications.

Conclusion

Considering that most traditional PSC contractors would have considered the implications of IR35 and made sure that their contracts would not fall under IR35 before taking this route, it would be fair to assume that most existing PSCs would not be affected by the legislation. This position may very well change completely if and when the IR35 itself is re-defined.

However, this may not be the case for thousands of weekly paid low and medium rate Umbrella workers who may be forced to consider PSC as an Umbrella alternative. For most of them, the nature of the work and the contracts would squarely put them under IR35 and a direct exposure to the T&S legislation. These contractors have chosen Umbrella option for a reason – that reason being they have no time and resources to manage their own tax affairs. It would be wishful thinking to push them to PSC – while some may survive and even flourish, most will perish.