Before April 2016, workers could claim tax relief on travel and subsistence costs before being paid PAYE. As a worker this allowed you to reduce your tax bill and increase the amount of money you received in your payslip. By being paid PAYE, the worker also received all the benefits of being employed too.
The Government introduced new legislation to close what they perceived was a loophole and allowed workers to be ‘disguised employees’. The intention was to bring temporary agency workers ability to claim expenses in line with permanent employees. Importantly, the new legislation also changed the starting point with all workers assumed to be under SDC unless they could prove otherwise for each assignment they worked on.
The new legislation was called the ‘The Finance Act / Supervision Direction or Control Act’. In simple terms the act states that if a worker is under the Supervision, Direction OR Control (SDC) of the hirer OR if the hirer just has the right to supervise, direct or control the work – they are no longer permitted to offset expenses against their taxes.
But what does Supervision, Direction or Control actually mean?
HMRC define SDC like this:
- Supervision – the worker is overseen by someone else who is ensuring the work is being done to the required standards
- Direction – someone is instructing or directing the worker in their work; this can be through guidance or advice
- Control – the worker is dictating to the worker where, what and how they do their work; this includes someone having the authority and power to move the worker from job to job, or task to task
Who Decides on SDC?
Before you start each assignment, your payroll company will ask you a series of questions which you must answer truthfully and completely. These questions will cover the role, your responsibilities and the working environment.
Before you’ve even answered the questions, it’s worth bearing in mind that the starting point from HMRC is that your assignment will be subject to SDC. It is your responsibility to demonstrate that the assignment sits outside of it.
As a temporary worker, you can work on multiple different assignments each year. As each assignment can be different, the test for SDC is applied prior to each new placement to ensure that the correct treatment is applied.
Ultimately, it is HMRC who decide whether your role is subject to SDC. They would look at two main aspects in making a decision. Firstly they will consider all documentation relating to each assignment. And secondly they will also look at the work itself and how this was carried out. This means you can simply have documentation to say the assignment is not subject to SDC – the work itself has to be carried out this way too.
It is likely that for some roles, SDC will always apply. For example if you work in teaching and nursing then supervision is a fundamental principle of almost all roles. It is also likely that if you pay is less than £xx per hour, that your role will be subject to SDC.
What if I Don’t Want to be SDC?
Unfortunately the test regarding SDC and whether it applies to your assignment isn’t subjective or optional. This means there isn’t a choice about whether your assignment is covered by the legislation or not. It’s determined solely by the work itself. This also means that all reputable payroll companies will make the same determination about whether your assignment is subject to SDC.
If a payroll company claims that they can pay you outside of SDC, where others cannot, this may indicate a non-compliant payroll provider which can put you at risk of HMRC action.
What are the risks of incorrectly or falsely claim no SDC?
HMRC continue to clamp down on disguised employment and this shows no sign of abating. If you are found to be non-compliant and working as a disguised employee, HMRC can investigate you and apply fines and penalties going back six years.
As well as the potential impact of significant financial penalties, the process of an HMRC investigation is time consuming and hugely stressful.
The other benefits of being an Umbrella Employee
Whilst the SDC tests have restricted the ability to claim tax relief on travel and subsistence, the other benefits of employment via an umbrella company remain. You can read more about there here [LINK] but in essence:
- Tax and NI payments to HMRC managed on your behalf
- Statutory benefits including holiday pay, maternity pay, sick pay and pension auto-enrolment
- Continuity of employment to help with loan and mortgage applications
- Insurances including public liability and professional indemnity included
If I am SDC, can I claim any expenses?
If your assignment is subject to Supervision, Direction or Control then you will not be able claim tax relief on travel and subsistence expenses as a general rule. There are however some specific exemptions which we can help advise you on. For example, if you are required to travel away from your principal place of work, you may be able to claim expenses relating to travel and subsistence in the same way that a permanent employee can. This is typically for a short period only and should be check carefully before you do so.
What Are the impacts of SDC for Agencies and Trade Contractors?
The SDC legislation is very broad and impacts workers, agencies and trade contractors. This means that claiming expenses inappropriately can potentially affect all elements of the supply chain.
For this reason our approach is simple, consistent and compliant. We follow a robust SDC process for each assignment and the final decision regarding the worker status is a result of the SDC test and not a preference from the worker, agency or contractor. This ensure each aspect of the supply chain is protected at all times.
