Compliance
Expenses Procedure Guide
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Compliance
Client Care Team
RACS Group’s dedicated Client Care department provides a direct
point of contact for contractors during office hours. Underpinned by
a six-point Charter, the team are committed to answering questions
and solving problems regarding any aspect of a contractor’s
relationship with us.
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Client Care Enquiries
Please email: clientcare@racsgroup.com
Please telephone:
0845 604 0571
Karen Illston-Baggs
Kelly Burt
Jo Jukes
George Hartnell
Kim Darling
Lorraine Robson
Kathryn Harrison
Luke Potter
Michelle Blackman
Gemma Carter
Client Care Manager
01985 220 907
karen.illston-baggs@racsgroup.com
0845 604 0571
jo.jukes@racsgroup.com
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kim.darling@racsgroup.com
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kathryn.harrison@racsgroup.com
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michelle.blackman@racsgroup.com
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Expenses Procedure Guide
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kelly.burt@racsgroup.com
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george.hartnell@racsgroup.com
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lorraine.robson@racsgroup.com
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luke.potter@racsgroup.com
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gemma.carter@racsgroup.com
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Compliance
Introduction
Welcome to RACS Group’s Expenses Guide which has been fully updated to accommodate the new legislation
which became law in April 2016, and how it affects contractors.
The most significant change dictates that the majority of contractors can no longer claim tax relief on previously
allowable travel and subsistence (T&S) expenses. Introduced as part of the Finance Bill 2016, the new guidance
regarding travel and subsistence tax relief will particularly affect those who claimed home-to-work (or work-tohome) expenses under the traditional umbrella payroll model.
However, some contractors may still be eligible for expenses tax relief should they fall outside of the Government’s
SDC (Supervision, Direction or Control) test used to ascertain the status of any given contractor.
Those subject to any form of SDC will be treated the same as if they are embarking on an assignment at a permanent
workplace, thus ineligible for T&S expenses tax relief.
This brochure provides detailed information regarding the legislation, in addition to offering guidance on how to
claim tax relief on eligible expenses as defined by HM Revenue & Customs.
We trust this document will assist you to adjust to the new legislation and become familiar with the processes and
procedures introduced to help ensure your compliance.
If you need any further information, please visit www.racsgroup.com or phone 0845 604 0571.
Kindest Regards
Terry Hillier
RACS Group
Managing Director
Contents
What are Business Expenses
4
New Legislation
4
Background to the Legislation
5
How do you claim Tax Relief?
6
What can be treated as tax-deductible?
8
Foreign Expenses
10
RACS DSC - The benefits
11
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What are Business Expenses
Genuine BUSINESS EXPENSES are those that are incurred wholly, exclusively and necessarily in order
to perform the duties of an assignment. The benefit of claiming business expenses is to offset your
expenses against tax already paid, leading to a possible refund.
New Legislation
Two changes effective from April 2016 mean that there are new restrictions on what expenses may
be set off against income for tax purposes, and if you incur business expenses, you will need to make a
claim to HM Revenue & Customs at the end of the tax year.
The Finance Act 2015 made the first change: the rules will no longer allow salary to vary depending
on how much you incur on business expenses in each pay period. The use of so called ‘salary sacrifice’
arrangements, or ‘payday-by-payday relief’, has been curtailed.
The Government announced the second change in December 2015: the tax and National Insurance
contributions (NIC) rules on travel between home and work would be changed with effect from 6 April
2016 for anyone working through an ‘intermediary’ whose work is supervised.
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Compliance
Background to the Legislation
Old commuting rules before 5th April 2016
Tax and NIC law gives no relief for the costs of travelling between home and your normal, permanent
workplace (known as ‘ordinary commuting’), on the basis that it’s your choice where you live, and the
state should not subsidise your commuting costs. However, if your employer sends you somewhere else
to work, for a temporary period, the costs of travel between home and that temporary workplace can be
paid to you tax-free. The allowable costs also include meals whilst away from the normal base. This basic
principle still applies, but what counts as commuting and a permanent workplace has been redefined.
Agency workers generally have only a permanent workplace, for the duration of each separate
assignment, so their home-to-work travel and subsistence expenses cannot be paid tax-free. However,
‘umbrella’ company and personal service company (PSC) workers with longer-term contracts, whose job
meant that they had to incur costs in travelling to a series of temporary workplaces, could claim tax-free
travel and subsistence expenses for their commuting to a temporary workplace. Many such employers
paid tax-free travel and subsistence expenses in substitution for part of the wages for the work, saving
tax and NICs in the process.
These rules were tightened significantly, putting agency, umbrella and PSC workers on the same footing
as ordinary employees.
New rules from 6th April 2016
The Government has decided that many such workers are equivalent to ordinary employees, who
cannot claim such tax-free expenses, so the 2016 Finance Act has changed the rules.
If you work through an ‘intermediary’, such as an umbrella company, agency or PSC, and somebody
has the right of supervision, direction or control as to how you carry out your duties, like the direct
employees who work there, every place you are sent on assignment will be treated as a permanent
workplace (unless you work in somebody’s home).
This means that any payment by the intermediary to cover the costs of your travel between home and
work and any meals whilst away will be treated as part of your taxable wages. This change stops the
substitution of tax-free expenses for taxable wages.
What hasn’t changed?
The new rules only apply to those whose travel is classed as being ‘for necessary attendance’ at a
temporary workplace. They do not affect those whose jobs require them to travel as part of their duties
and to incur travel expenses in the process (eg, district nurses, travelling salesmen, meter readers, etc).
They also do not affect those whose work involves going into somebody’s home (eg, domestic carers).
There has also been no change to the rules about expenses incurred wholly, exclusively and necessarily
in the performance of duties. If, for example, you have to incur personal costs making telephone calls as
part of your job and your employer reimburses you, those expenses will still be free of tax and NICs. The
rules for deciding which expenses are tax-free are outlined in this brochure.
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How do you claim Tax Relief?
Your salary from your company is set by your contract of employment, and is determined by how
much your company is paid for the work you do. The company has to account for PAYE, NIC and student
loan deductions.
Because everything the company earns is paid out to you as remuneration, there is no money in the
company to pay you tax-free expenses, even if you are eligible to claim them.
However, where you have incurred eligible expenses, you can still make a claim to
HM Revenue & Customs for tax relief.
If your allowable expenses do not exceed £2,500:
• You may use the HM Revenue & Customs Form P87, which is available for completion on
HM Revenue & Customs website (go to www.gov.uk and search for P87). You complete the
form on screen, then print and post it to HM Revenue & Customs.
•You may instead prefer to use the HM Revenue & Customs online tool to submit an online
claim, but you will need to register with HM Revenue & Customs for a Government Gateway ID
if you don’t already have one (the link is on the P87 page of the website).
If your allowable expenses exceed £2,500, HM Revenue & Customs will require you to file a selfassessment tax return. As a director, you are likely to be asked to file an annual self-assessment
return in any case.
In either case, you will need to keep receipts for any expenditure and detailed mileage records. These
may be on paper or digitally: there are several free apps online to help with record-keeping, including
allowing you to take and automatically store a photograph of each paper receipt, ticket or invoice.
What are ‘business expenses’ for tax purposes?
It may seem obvious whether an expense relates to the work you do, but tax and NIC law restricts the
types of expense that may be set against your income to reduce your tax bills.
The main rule
A genuine business expense for tax and NIC purposes is one that you have to incur to do your job, and
that relates only to the job. In technical terms, the cost must be incurred:
wholly
exclusively and
necessarily
in the performance of the duties of the employment.
An expense claim must comply with each of these four requirements.
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The key test for reclaiming is often whether anyone doing the job would have had to spend the money.
For example, if you need to make a business telephone call at your own expense, you can reclaim the
actual cost tax-free. You cannot reclaim your home or mobile phone rental, though, because that was
not a cost incurred in the performance of your duties (unless it is a dedicated business line and you do
not use it privately).
Travel & subsistence
If your job requires you to travel to a meeting, conference, training course, etc, that is not being held at your
normal workplace, tax relief may be claimed for the expenses of travel (including meals and hotel bills).
Note: this is not the same as being transferred temporarily to another location, which is no longer
tax-exempt. The location of the meeting, conference, training course, etc would still be classed as a
temporary workplace because you have a base and you are away only briefly.
Claiming your Expenses
Following the introduction of new travel and
subsistence legislation in April 2016, tax relief on
business expenses can only be claimed at the end
of your financial year.
You will need to complete and submit either your
annual self-assessment submission or a P87 form
to HM Revenue & Customs.
£ Subtotal
£ VAT
£ Total
You can still record your business expenses on a
regular basis via your online contractor portal.
RACS Collective (UK) Limited will provide you with a
complete list of all recorded expenses at the end of
the financial year.
Please remember to keep all your receipts
throughout the year to support your expenses claim.
Information Required
Before recording your expenses, please ensure you have the
following information:
The name of your assignment location (ie place of work)
Important note - all claims must now have a valid
receipt of purchase
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What can be treated as tax-deductible?
Your wage from your company will be subject to PAYE and NIC deductions, but you may claim tax relief
for certain amounts for expenses.
The law gives relief from income tax for expenditure when it is incurred wholly, exclusively and
necessarily in the performance of your duties.
The following list provides examples of expenditure which is normally tax-deductible if it complies with
the rules outlined above.
Pension contributions to a registered scheme
A director may pay up to £40,000 each year (or 100% of pay, if that is less) into a registered
pension scheme and obtain tax relief. For every £800 paid to the scheme, HM Revenue & Customs
tops it up automatically to £1,000, giving you 20% relief when you pay the contribution.
If you are a 40% taxpayer, you claim the extra 20% relief through your tax return.
Stationery, postage and printing costs
Anything you spend wholly, exclusively and necessarily on stationery, postage, printing, printer ink or
toner, and on any repairs to equipment that you use only for your work may be eligible for tax relief.
Training courses
Work-related training costs are tax-deductible if the training is a requirement of your employment,
and there is no element of reward or recreation in the training. This includes the costs of travel
and accommodation related to the course and any course materials. No tax relief will be given
for the cost of training that is not a requirement of the current job, such as learning new skills
necessary to work at a higher grade.
Occasional business travel
You may claim for train or bus tickets, or a tax-free mileage allowance, for travelling on business
other than to and from a permanent workplace or a place that is treated as permanent for tax
purposes. This means business travel to locations other than your regular workplace, such as to
attend meetings or training courses, or to deliver something. The relief includes the costs of any
hotel rooms and meals if you have to stay away.
If your assignment is for an organisation with two or more sites where you work regularly, any
mileage between the sites should be tax-deductible, but travel from your home to each of the sites
is likely to be seen as ordinary commuting to a permanent workplace, which cannot be claimed.
However, if you have one site as your regular base and are required occasionally and irregularly
(eg not every Wednesday) to spend a day at another site, your fares or mileage between home
and the other site (ie a temporary workplace) should be eligible for tax relief.
The authorised mileage allowance is 45p per mile for the first 10,000 miles per year, and 25p per
mile thereafter. This rate also applies if you have a job that involves travel without regular visits to
a fixed base.
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If you travel by public transport, there is no restriction to travelling in standard class, and if you
incur accommodation costs, there is no requirement to choose the cheapest lodgings: the relief
is based on how much you actually spend in doing your job, and the only practical limit is that
the amount must be reasonable.
If you are away from your base undertaking business travel you may claim a reasonable amount
for a meal, but you must retain evidence of all expenditure on meals.
Telephone and internet
If you use a residential landline or personal mobile phone for business purposes, you can treat
the cost of all business calls as eligible for relief from tax and NIC. However, you will need to keep
an itemised bill with the relevant calls highlighted and totalled. You will not be able to treat the
monthly rental as a business expense, and if your business calls fall into your bundled allowance,
you will incur no extra expense, so you cannot make a claim. Your broadband contract at home
will also not be eligible for tax relief (unless it is used exclusively for business purposes, which is
extremely unlikely unless your job is in IT and is home-based).
Computers
You could be eligible to claim relief for the cost of software related solely to work use, although
this may be difficult to evidence, unless it is job-specific. You will not be permitted to claim for an
annual subscription to generic software for email, word processing, etc.
Professional subscriptions
HM Revenue & Customs publishes a list of approved professional bodies whose subscriptions are taxdeductible. Subscriptions to professional journals required for your work should also be allowed.
Use of home as office
If you use your home for some element of home-working, and can identify your extra heating, lighting
and insurance costs, relief might be available, but HM Revenue & Customs may request evidence of
the extra costs.
Insurances
The company may pay for your professional indemnity insurance, together with its own employer
liability and public liability insurance, without the cost being treated as a taxable benefit for you.
HM Revenue & Customs Guidance
HM Revenue & Customs publishes extensive guidance on expenses on its website: www.gov.uk.
We recommend the following reference documents:
Booklet 480: Expenses and benefits - a tax guide
Booklet 490: Employee travel - a tax and NICs guide for employers
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Foreign Expenses
People living outside the UK but working within the UK can claim the cost of travel between UK and home.
You can also claim the cost of your accommodation and travel whilst in the UK. However, certain criteria
need to be met which include being domiciled outside the UK and retaining a residence in the home country.
To be eligible to claim expenses as a non-UK national you must have secured your position through your
agency before you leave your home country.
If you meet the requirement stated above and can prove it, you will be eligible to claim for travel expenses
back home for up to 5 years after you arrive in the UK. You will also be able to treat your accommodation
expenses as tax deductible for a maximum period of up to 2 years from the date of your arrival.
Going Home for a Visit
The full cost of journeys from the country where you usually live to the place where you are working
and back again are fully tax deductible and there is no limit on the amount of journeys you can claim for.
Receipts must be provided at the time of claim for it to be allowed. If you do not have the receipt the
actual ticket will be accepted as long as it has the price clearly stated on it.
Family Members Coming to Visit
If your work keeps you in the UK for more than 3 months, the costs incurred by your husband/wife and/
or children coming to visit can be claimed as an expense against your tax. Please be aware that HM
Revenue & Customs will only permit 2 such claims in each tax year for your family. Receipts or travel
tickets must be supplied at the time of the claim clearly stating the price.
Accommodation and Utility Expenses
The costs of hotels, B&Bs (Bed and Breakfast) and rent can be claimed as an expense. Hotel and B&B
costs must have supporting receipts that cover the period being claimed at the time of the claim. If
claiming rent you will need to provide a rental agreement in support of this claim for your records. You
will not need receipts each time this is claimed unless the date on the rental agreement has expired.
If you come to the UK with your family and incur additional costs to accommodate them it will only be
the costs that apply to your housing that will be allowable.
The utility bills incurred on your rented accommodation can be classed as tax deductible; these include
council tax, gas and electric only.
PLEASE BE AWARE THAT THE ABOVE MENTIONED CLAIMS CAN ONLY BE ACCEPTED IF YOU
FULFIL THE INITIAL STIPULATIONS SET OUT AT THE BEGINNING OF THE FOREIGN EXPENSES SECTION
OF THIS GUIDE AND CLAIMED AT THE END OF THE TAX YEAR.
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Risk Free
THE RISK FREE EMPLOYED INCOME MODEL
RACS DSC is a fully compliant and risk free payroll model designed to help
you get paid in a tax efficient manner which offers the following benefits:
1
2
3
4
5
Tax efficient and risk free take-home pay typically higher 6 Various VAT options including Standard, Flat Rate (FRS)
than umbrella (no T&S expenses)
or No VAT
Fully compliant with all new and existing tax and
7 Director status without any hassle
employment legislation
8 Easy sign-up process or transfer from umbrella model
All tax and National Insurance contributions paid at source 9 Managed 24/7 via your online contractor portal
Simple model with minimal administrative burden
10 Total support from RACS Group’s dedicated
All contractor invoicing taken care of with no
Client Care team
unexpected bills
FOR MORE INFORMATION OR TO REGISTER WITH RACS GROUP
Registrations
0845 604 0571
registrations@racsgroup.com
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Head Office: RACS Group House, Three Horseshoes Walk, Warminster, Wiltshire. BA12 9BT
Industry & Compliance Accreditations
APPROVED SUPPLIER TO
THE ASSOCIATION OF
RECRUITMENT CONSULTANCIES
RACS Group’s Compliance Initiatives
RACS Group’s Awards
Number
38
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WINNER
RACS Group
RACS Group House | Three Horseshoes Walk | Warminster | Wiltshire | BA12 9BT
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