The Finance Bill 2016, which is currently working its way through Parliament, introduces new rules which restrict the ability of workers providing their services through an intermediary to claim a deduction for the cost of travelling between home and work.
Employees are not allowed a deduction for home to work travel costs (known as `ordinary commuting’) and the new rules deny relief in certain situations to workers working through an intermediary for travel, which is essentially ordinary commuting. However, it should be noted that the rules do not affect all workers providing their services through an intermediary – a deduction for home-to-work travel is only denied if certain conditions are met.
Who is affected?
The new rules apply where a worker:
- personally provides services to another person;
- is employed through an employment intermediary; and
- is under the supervision, direction or control of any person in the manner in which they undertake their work.
Employment intermediary
The rules apply where the worker does not provide his or her services direct to the client, but those services are provided through an intermediary. Thus, the intermediary provides an additional layer between the worker and the client. The intermediary may be a personal service company, an umbrella company, an employment agency or similar.
Supervision, direction and control
The ’supervision direction and control’ test is critical in determining whether a worker who provides services through an intermediary is able to claim a deduction for the cost of travel between home and work. The new rules only bite where the worker is subject to, or is subject to the right of, ’supervision, direction and control’ of any person as to the manner in which the worker provides his or her services.
The ’supervision, direction and control’ test already applies for the purposes of the agency legislation, and guidance how HMRC apply the test is available on the gov.uk website.
It should be noted that the ’supervision, direction and control’ test is met if there is a right to supervise, direct or control, even if there is no actual supervision, direction or control. The supervision, direction or control can be provided by ’any person’. It does not have to be provided by the client – the test is met if it is provided by an agency, a project manager, a consultant, a site manager, etc.
The worker only needs to meet one part of the test for it to apply – i.e. the test is supervision and/or direction and/or control. Thus a worker who is supervised but not subject to direction and control will be within the rules.
Supervision
The ’supervision’ element of the test is met if someone watches or oversees how the worker provides his or her services or checks the work that the worker is doing to make sure that it is done correctly or to the right standard. Supervision may also exist if someone helps the worker develop his or her skills and knowledge.
Direction
Direction over the manner in which a worker provides his or her services means providing a worker with instructions, guidance or advice so that they do their work in a particular way. A person providing ’direction’ will often also co-ordinate how the work is done.
Control
A person is subject to control as to how they do their work if another person tells or instructs them how to do the work. It is the right of a person to say to the worker ’don’t do it like that’ or ’do it like this’. Control is also present if a person has the power to move the worker from one job to another.
Practical Tip:
A worker who nonetheless provides personal services through an intermediary is still able to claim a deduction for home to work travel if they are not subject to supervision, direction and control.
