Contrary to popular belief, contractors are not always able to legitimately claim travel to work expenses. If, for example, an umbrella company says they have a dispensation, this just means the umbrella company themselves can save time by not having to provide evidence of expense claims – it does not mean contractors can claim travel to work expenses or round sum expenses, unless they have actually incurred these expenses. Travel to work expenses can only legitimately be claimed with no fear of retrospective challenge if:
• They relate to a temporary place of work, expected to be in place for less than 24 months. Where an assignment is expected to last for 24 months or longer, no travel to work expenses can be claimed for any part of the contract, even the first 24 months – e.g. for a 20 month contract, travel to work expenses may be eligible for the entire 20 month period, for a 24 month contract, travel to work expenses will not be allowable for any of the 24 month period. Furthermore, if at any point within a contract it becomes the expectation that it will exceed 24 months, no travel to work expenses can be claimed from this point onward.
• The expenses have actually been incurred by the contractor in the first place and could be proven as such
• The contractor is working through a limited company or, where working through an umbrella, there is a robust over-arching contract of employment in place between the contractor and umbrella company – meaning amongst other things that they will employ the contactor between assignments. This shows that the contractor is employed by the umbrella company but that the current assignment/workplace is a temporary one, where the expectation is that there will be subsequent temporary assignments. If there is no over-arching employment contract, the current place of work will simply be deemed to be the permanent place of work and no travel to work expenses will be legitimately claimable
Furthermore, it is worth noting that HMRC’s ‘round sum amounts’ or ‘business scale rates’ where a fixed sum can be claimed for items such as breakfast, are only to be used when an expense has actually been incurred and simply avoid the need for the umbrella company to perform a sampling exercise. They are to be used in occasional circumstances, not for a regular pattern of claims – validated expenses are required for this.
Contractors should make sure their arrangements, particularly with their umbrella company, comply with these criteria, if they are claiming travel to work costs and want to stay on the right side of the taxman, with no risk of retrospective challenge and penalty by HMRC.
The recent release by the First Tier Tax Tribunal of the judgement in the case of Nigel Ratcliffe v HMRC, reinforces the importance of having the correct contact of employment in place. Mr Ratcliffe had been employed by a company under one contract for a period of 7 months, during which he was required to attend various sites. He then had a break from this work for a few weeks and was later re-employed by the same company, through a series of separate contracts, each relating to one site only. He claimed travel to work expenses throughout his employment relationship with the company and across all of these contracts. Despite the fact that he had been employed on and off by the same company throughout the period, working at a number of different sites, the judgement ruled that the period when he was employed on a series of individual contracts, one at a time for each specific workplace, did not meet the definition of a temporary workplace, but rather each contract constituted a permanent one. All of his travel to work expenses during this period were disallowed accordingly and his tax bill increased retrospectively. Even though he’d been employed by one company at a series of temporary sites in practice, the inadequate contractual arrangements meant
that each was deemed to be permanent for tax purposes.