Contractors who live within 30 minutes walking distance from their client’s site face losing tax relief on their travel and subsistence expenses, according to shocking new proposals by HMRC contained in a draft proposal leaked to ContractorCalculator.
Designed to encourage contingent workers to run to work rather than drive or use public transport, HMRC’s proposed ‘living in close proximity to work’ regulations also include provision for home workers to earn tax reliefs through home exercise regimes.
“This is yet another example of HMRC unfairly targeting contractors with punitive taxation because they are an easy target,” believes ContractorCalculator CEO Dave Chaplin. “This comes hard on the heels of the umbrella expenses consultation, demonstrating that HMRC clearly believes it has the right to intrude on every aspect of a contractor’s life.”
Close proximity to work regulations – how they work
According to the proposals leaked to ContractorCalculator, anyone living within 30 minutes walking distance from work will not be allowed to claim for motor vehicle or public transport travel expenses, because they could walk to work.
The only exception to the new rules is that if it is raining or below 5⁰C, then a contractor will qualify for tax relief on travel expenses because the taxman isn’t that mean that it expects workers to get cold and wet on their work journeys.
However, contractors will be required to provide detailed logs alongside Met Office weather reports to prove that the car, bus or train journey was justified. Contractors will then have to report monthly on their journeys for a period of up to three years after each incidence of weather-related non-walking.
Aligning tax policies with healthcare policies
It is believed that the government’s strategy is to closely link levels of taxation with healthcare, in a similar way to how employment law is used to determine how much tax someone pays.
Chaplin explains: “This is apparently aligned with the government’s drive to reduce obesity and to reduce the drain that less fit and healthy people make on the NHS.
“Encouraging people to walk more via the tax system seems a natural policy to align with the drive to increase fitness in the general population as well as contractors. It certainly works in an employment status context.”
Encouraging fairness in the tax system
HMRC is even considering providing tax deductions for running gear, provided it can be proved that the clothing and equipment purchased is wholly, necessarily and exclusively used for running to work.
In line with the government’s digital strategy and Budget 2015 measures to abolish tax returns and replace them with an online digital account, a trial is planned that will use a dedicated HMRC iPhone tracking app.
The app measures the speed and mode of travel of the worker. If a contractor is detected running to work, they will be given a special tax relief via their tax code.
“This could be unfair to home workers of course,” continues Chaplin. “We’ve been told that HMRC is also considering extending the application to provide a tax relief to anyone actively running before working hours, even if it’s just around the block and back home.”
Anti-avoidance and forestalling measures
Tax experts have expressed concern that the tax relief could be gamed by tax avoiders who could hire “phone walkers” to illegally obtain the tax relief. Calculations indicate that to earn a reasonable income, a phone walker would need to collect at least 25 phones and take them for a walk for up to four hours before it becomes economical.
“HMRC has said that its app includes anti-tax-avoidance functionality that will automatically detect groups of phones all running together in order to identify tax avoidance,” highlights Chaplin.
“Any early morning or late evening running clubs will be encouraged to register with HMRC to ensure the runners are not all classified in this manner.”
HMRC was reluctant to comment, but eventually a spokesman for HMRC said “Yes, we understand that this new legislation is going to be very complex. The good thing about complex legislation is that it then requires experts who need training on how to interpret the rules and explain them to the normal people who have to abide by them.
“This is in line with government policy because it creates more high value jobs in the taxation industry, and more taxpayers who pay more tax. The messier and more incomprehensible the tax system is, the better for our tax yields.”
Chaplin concludes: “Contractors should start preparing for these new regulations that are likely to come into force once HMRC decides how it can secure the approval from ministers without them looking at implications in any great detail. The UK’s tax code will become even more complex as a result.”