Personal service companies' travel problems. By Rebecca Benneyworth

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The treatment of travelling expenses by workers providing their services through limited companies can be very complex, and the rules are frequently not applied properly. This is one of the aspects of the taxation of managed service companies that HMRC were so critical about in their December 2006 report, which prompted plans for a significant change in the legislation.

Tax relief for travelling expenses is given by Sections 337 to 339 of ITEPA 2003, but section 337 is not relevant to this area, as in practice it covers only travel between workplaces (during the working day) and travelling appointments such as commercial travellers and service engineers.

Sections 338 and 339 together provide for tax relief travelling to a temporary workplace, but excludes relief for ordinary commuting, or a...

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05th Mar 2007 16:42

Not so fast ...
You say that the 'depot rule' is not normally relevant to contract workers. I'm not so sure. S. 339(4) ITEPA says that 'a place which the employee regularly attends in the performance of the duties of the employment is treated as a permanent workplace and not a temporary workplace if ... (b) the tasks to be carried out in the performance of those duties are allocated there.' With contract workers this is exactly what will normally happen.

All right - this may not be the Revenue's intention, as witness their voluminous literature on the subject, but I can assure you that one or two bright-eyed inspectors have spotted this and gone for substantial sums as a result.

David Kirk, MA, FCA, ATII
David Kirk Limited
[email protected]

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07th Mar 2007 08:55

May we have consensus on this point, please?
Nothing in section 339(4) makes any reference to the ownership of the premises in question. Why is it relevant that they are "client's premises"?

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08th Mar 2007 16:59

HMRC advice
The IR35 questions and answers are not the only place where they suggest that the depot rule is designed for something completely different - so do booklet 490 and the employment income manual (pages 32160 to 32164). Revenue interpretation 271 (see Tax Bulletin 74) does not mention the depot rule but is incomprehensible if it is applied in the way that I suggested.

All this means that anyone who is challenged on this should take the matter to the Special Commissioners. My guess is that the Revenue would back off at that point, because there would be uproar if they won.

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06th Mar 2007 22:36

David thanks for your comment. I haven't met any contractors in that position - all of mine have gone to client's premises to perform services or worked partly from home, visiting site as and when necessary.


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By Anonymous
08th Mar 2007 13:37

HMRC guidance?
I'm a little puzzled. The attached link to HMRC 'Common Questions' re IR35 seems to say there won't be a problem with travel provided the 24 month rule is met, regardless of 40% or anything else.

Or does it say one thing but mean something else?

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08th Mar 2007 14:33

hmrc leaflet is unequivocal??
"If you do spend more than 40 per cent of your 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"

...soooo they say the 2 year actuality is pre-eminent?

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07th Mar 2007 11:53

Client's premises
True that there's nothing about client's premises in S. 339(4), but they are typically where a contractor will (a) regularly attend in the performance of his duties and (b) be allocated his tasks. If (a) and (b) happen at one and the same place it is quite hard to see how 339(4)(b) does not apply.

The context in which I have come across this is in umbrella companies, who have large numbers of contractors on their books who fail IR35 tests. They can be in for six-figure sums on this, and can only with difficulty get their money back from the contractors who will, by the time this is discovered, have sailed off into the sunset.

The solution is to make sure that the contractors are allocated their tasks at some other place, such as by e-mail at their home address.

David Kirk.

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07th Mar 2007 16:03

so y did hmit in his infinite and unfathomable wisdom ever introduce the new 24 month rule back in ye 1998?
before then most psc employees only claimed REAL travel, not regular commuting.
if we went back to the 1998 situation most of Gordon's fury over ltd expense claims would evaporate, and his keenness to bin composites via a massive raft of new legislation would also diminish?

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