What is the Supervision, Direction, or Control test and how does it affect travel and subsistence expenses?

If you work through a personal service company (your own limited company), then you need to understand the rules around Supervision, Direction, or Control (SDC) to see if you can claim travel and subsistence expenses during your contract.

Before we get to exactly what this means, let’s explain why this matters.

Why is the Supervision, Direction, or Control test important?

The Finance Act 2016 introduced measures to create a ‘level playing field’ between permanent workers who cannot claim tax relief on travel and subsistence expenses, and those freelancers and contractors who could.

Who do these changes affect?

There are three main groups of workers affected by these measures:

• Agency workers
• Umbrella workers
• Limited companies affected by IR35.

If you fall into any of these categories, you may not be able to claim tax relief on travel and subsistence expenses. For those still unsure whether they’re affected, you can use the Supervision, Direction, and Control (SDC) test to get a clearer picture.

So how do I apply this SDC test?

The SDC test is broken into three sections, as the name suggests. A worker will need to show that they’re not under the supervision, direction or control of the client they’re working for if they want to claim tax relief on their travel and subsistence expenses. Let’s break them down:

1. ‘Supervision’ means the extent to which your client oversees your work and how you perform it to a standard they have specified.
2. ‘Direction’ means your client directing how you complete your assignment, by providing instructions, guidance and advice as to how the work is to be done. Someone providing direction will often coordinate how the work is done as it progresses.
3. ‘Control’ is where you have someone dictating the work you do and how you go about it. This also includes the power to move you from task to task as priorities change.

What will HMRC base their judgements on?

There are two main ways for HMRC to apply the SDC test:

• Documentary evidence, such as contracts and terms of engagement. Establishing what you’ve actually agreed to and the terms both parties accepted will be their first stop
• The ways in which the work was actually performed – the ‘working practices’ followed. They’ll gather facts from anyone involved in arranging your contract, including you, the client and the agency.

HMRC has outlined some typical examples and scenarios under the expenses legislation to help contractors understand the rules a little more.

If you’re in any doubt over your SDC status, you can contact your umbrella company or agency for some clarification. If you have your own limited company, please speak to an accountant.