The IR35 rules have no effect on the operation of the current travel rules, which determine the expenses deductions available to employees. The IR35 legislation treats all engagements as being part of a single employment with the intermediary, therefore, the rules in respect of travel expenses should be applied on that basis when working out whether the place of work is temporary or permanent. The Paymaster General confirmed this in Standing Committee.
Provided the contractor does not expect to spend more than 40% of his or her working time at any one site he or she is entitled to a deduction for all journeys from home to the client's premises. If he or she does spend more than 40% of his time at a single site, but the engagement is both expected to, and actually does, last for no more than 2 years, a deduction for travel costs will also be available. Booklet 490 provides further guidance on the application of the travel rules.
Workers cannot obtain relief for their travel and subsistence where the period at the temporary workplace comprises "all or almost all of the period for which the employee is likely to hold the employment." There have been concerns that this rule will be used to prevent the Personal Service Company worker obtaining tax relief. However the "employment" of the worker is with his or her Personal Service Company, not with the client; the IR35 rules do not change this. They simply deem the income from relevant engagements to be taxable as employment income, they do not deem the worker to be an employee of the client.
Thus the "period for which the worker is likely to hold the employment" refers to employment with the PSC, not the engagement with the client, therefore the treatment of travel and subsistence for workers will be no different under the IR35 rules than it is today.
We are grateful to Anne Redston of the CIOT for suggesting amendments to
this example to make it clearer.
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