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Travel and Subsistence Expenses

By Contractor Weekly


HMRC guidance to supervision, direction or control

As the new legislation governing the eligibility to claim tax relief for travel and subsistence expenses kicked in last week, HMRC has published its guidance on supervision, direction or control (SDC).

The legislation will mainly affect those working via an umbrella company but contractors need to be aware that the legislation can apply to them if their PSCs are caught by IR35. Before 6th April 2016, umbrella workers were able to claim travel and subsistence expenses whilst working at any site but this will not be permitted if they are subject to (or a right of) SDC by any person. If travel expenses are claimed erroneously then the PAYE and NIC liability will fall upon the umbrella company in the first instance but can be passed on to a director or an officer of that company if the debt is not paid. In the same manner, individual contractors can also have that debt transferred to them if their company is caught by IR35, as travel and subsistence tax relief is automatically denied.

Before permitting their workers to claim travel and subsistence expenses, umbrella companies will now have to demonstrate that they have sufficiently considered whether or not their employee is subject to SDC. This will mean gathering evidence and documenting it. Not surprisingly, HMRC isn’t prescriptive on what evidence HMRC or the Courts would find persuasive in considering whether this test is met, using the feeble excuse that it will depend on individual arrangements. They surely must have a good idea of what evidence they would accept as being legitimate, they are just not telling anyone!

What we do know is that HMRC does not consider signed waivers and generic statements that the manner in which the worker provides the services is not subject to SDC, as satisfactory evidence.

In a PAYE enquiry HMRC will test the evidence by examining relevant documents and gathering facts from all parties involved, which include, but not limited to, the workers, agency, client(s), managers etc.

Meaning of SDC

Conveniently for HMRC, there is no definition of the SDC test in law but for the purposes of the legislation it is:

  • A test in isolation – it is not necessary to consider any of the other employment status tests. SDC is the ‘how’ aspect of the control test and that is all that needs to be focused on when considering the legislation.
  • Not a question of extent; the SDC test is either met or it isn’t.

Crucially, only one part of the SDC test need be met for the legislation to apply. For example, if the manner in which the worker provides the services is subject to (or to the right of) supervision by any person and not direction or control, the test is met.


Supervision over the manner in which the worker provides the services is the action or process of watching or overseeing what a person does or how something is to be done. If a person checks or has the right to check the work that the worker is doing to make sure it meets a required standard, the manner in which the worker provides the services is subject to supervision.

Supervision can involve helping the worker develop their skills and knowledge.


Direction over the manner in which the worker provides the services is making a worker do their work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Someone providing direction will often co-ordinate how the work is done as it’s being undertaken.


Control over the manner in which the worker provides the services is telling or instructing a worker about how they do their work. Control over how the person does work also includes someone having the power to move the person from one job to another. If someone can say “don’t do it like that” or “do it like this” then they have a right of control as to the manner in which a person works.


During a relevant PAYE enquiry HMRC has advised their officers as to some of the information they should be examining to establish if SDC is present:

  • The services the worker was originally contracted to provide and what they actually provide or do
  • Who the worker works with, why and when
  • Where the worker works, why and when
  • Who checks the workers work, when and why – what has been checked, by whom, why and did any work have to be re-done
  • Whether the worker has been moved from one job to another – when, why and by whom
  • In what circumstances the worker can refuse to do work and whether they have done so
  • Who the worker reports to, when and why
  • Whether the worker has had to seek guidance from anybody to do the work and if they have had to, what guidance was required, who gave it and when.

Job specifications

When a worker is given a detailed job specification by any person, it may include details which set out how the worker must complete the work. This may indicate the presence of a right of SDC. Where, however, such a specification only sets out the outcome, this on its own does not mean that the SDC test is met.

Existence of a job specification which includes, for example, a breakdown of tasks for completion within set time frames with specific steps outlined, standards and checkpoints, indicates that a person has a right to instruct the worker how to do their work.

Regulatory environments

As a general rule, HMRC considers those workers who work in industries where the manner in which they work is governed by regulations or some other statutory framework or standards, will be subject to the right of SDC. This is because someone will have the right to check that their work complies with those standards. To check that workers are complying somebody will need to have the right to supervise their work and, if appropriate, direct or control how the worker does their work. The types of workers HMRC has in mind are the likes of:

  • Health care workers, e.g doctors and nurses
  • Social care workers, e.g social workers and social work assistants
  • Teachers and teaching assistants

Whilst I would not disagree with these example professions, this does not mean to say that each and every industry or profession will follow suit. In the 2009 First Tier Tax Tribunal case, Sherburn Aero Club v HMRC, the Revenue argued that the obligations imposed on flying instructors under the flying club’s rules and the Flying Order Book indicated control over the way in which the instructors carried out their work. These however were general rules applicable to everyone using the airfield and the tribunal ruled therefore that they were of no assistance in assessing whether the club had any control in this manner. It is also worth noting that the syllabus for all flying courses, whilst dictated by the Civil Aviation Authority, elements could be taught in whatever order the flying instructors decided and the club were not involved in the process of deciding how the syllabus was taught.

Other professions such as accountancy and legal have rules and regulations laid down by their professional bodies but it is unlikely that qualified accountants, solicitors etc will have their work supervised, checked or scrutinized.

HMRC conclude their guidance by providing five examples of how the SDC test will work in practice but this is not clear cut. The first four involve a factory worker, supply teachers, home tutor and social worker and are quite straightforward.  It is the fifth example of a house builder where there are grey areas that appear to deliberately create an element of doubt in the taxpayer’s mind in the hope that they will concede the issue to HMRC.

Example 5 involves an experienced and skilled construction worker, Sam, who is supplied to house builders by an agency to work as a ‘general ground operative.’

Sam is told to report to the site supervisor at 07:30 on his first day as this is the time of the site briefing and everyone working on the site has to turn up at that time. On his first day, Sam is given a health and safety briefing and a copy of the site rules, which include the house building company’s expectations for all contractors. Many of the other factors certainly do point to SDC in operation but HMRC cite the fact that Sam having to adhere to site rules laid down by the house building company as amounting to SDC. I disagree based on the tribunal’s comments in the Sherburn case above and that construction sites will always have to lay down site rules for health and safety purposes.

The guidance, as with any other HMRC guidance, is only the Revenue’s interpretation of the legislation and how it should be applied and should not be regarded as a definitive guide. What it does provide however is an insight into HMRC’s mindset and how they will approach the issue so this needs to be recognised and kept in mind.

Published April 2016