The number of contractors in the UK job market is increasing rapidly. More and more professionals are taking over contractor jobs. One of the main reasons behind this shift is that being a contractor allows you to be your own boss and you can have a better work-life balance.
For contractors, there are mainly two work options available:
- Either work through your own Limited company or
- Work under an Umbrella
However, what we are going to discuss here addresses contractors working via their own personal service company or through an Umbrella Company. The discussion here will be about Supervision, Direction, or Control (SDC). The main motive behind this policy is to balance out the differences between permanent employees who cannot claim tax relief on travel and subsistence expenses and contractors
Introduction of Supervision, Direction, or Control test and who all are being affected:
Supervision, Direction, or Control test or more popularly known as SDC test introduced certain measures in order to level the playing field between permanent workers and contractors in the UK. These measures were addressed in the Finance Act 2016.
Who all are being affected
The SDC test affects anyone who falls under the below groups of workers:
- Limited companies affected by IR35
- Umbrella workers
- Agency workers
So if you belong to any of the above categories then you might not have a chance to claim tax relief on travel and subsistence expenses. However, if you have any doubts then you can take the SDC test to confirm whether you have the right to claim tax relief on travel and subsistence expenses.
Undertaking the SDC Test:
As the name suggests, the SDC test is a 3 step process that includes supervision, direction or control. In order to claim tax relief on travel and subsistence expenses, contractors need to prove that they aren’t under the SDC. Here’s a breakdown of the three components:
- Supervision refers to the limit to which a client engages with the contractor and supervises(oversees) his/her work and how well your duties to the specified standard.
- Direction refers to the direction, instruction and guidance offered by a client to the contractor to get the job done.
- Control is where a client dictates the work you do and how you go about it. This can also include the authority to assign you different tasks as priorities change.
Here is an example given by the gov.uk:
Agency sends Nick to work for a client
The agency enters into a contract with a client to supply 4 experienced decorators at £25 per hour and cost of materials. The contract does not specify the names of any particular decorators. The agency sends Nick and 3 other decorators to the client to carry out the work. Nick and the decorators complete tasks as required by the client.
Nick and the other decorators complete weekly worksheets setting out their hours worked and email them to the agency at the end of each week. The agency pays the decorators £15 per hour.
After the end of the contract the agency sends an invoice to the client for the cost of the service. In this case, Nick personally provides his services to the client, even though the client did not specify that they wanted Nick’s services. They specified they wanted 4 experienced decorators, so:
- there is a contract between the client and the agency
- under or in consequence of that contract Nick provides his services
- the client pay for Nick’s services
- the conditions in the agency legislation about a worker personally providing the services and the contract are satisfied
- the agency will need to consider whether the other conditions in the agency legislation are satisfied - ESM2034
So now you know what SDC Test means and if your work resonates with the above mentioned SDC Test then you can’t claim for a tax relief on travel and subsistence expenses. If you still have any doubts, you can contact your agency or Umbrella company. In case you are a Limited company owner, your Accountant can help you out.