Reply to: How do Prosperity4 get away with it!!!

[LisaContractorUmbrella]

Unfortunately Bluebird the rules and regulations that pertain to expenses are very complicated indeed which is why there is so much incorrect information around - we always advise any new contractor that is unsure to contact the Inland Revenue themselves, in this way it comes from the horse's mouth - so to speak

[Bluebird]

Lisa, thats what I thought as well.

When I was with JSA they allowed me to claim for lunch providing I filled in a log each month - which was a date and amount - I thought this was dodgy to say the least.

Now I'm LTD the only 'subsistence' I claim for is the odd evening meal when working late or occasionally breakfast if I have to take the 6pm flight up to edinburgh.

[LisaContractorUmbrella]

PAG - detached duty means being away from your normal place of work. Say you have a contract that takes you to London every day but the client then decides they need you to go to Birmingham for a day - you could then claim for lunch. You could also claim for lunch is you were on the road all day - like a salesman or a lorry driver. It is also possible to claim for certain meals if you are forced to work outside your normal working hours e.g. if your normal hours of work are 9 to 5 but there is a huge system problem which has to be fixed that night you may be required to work until 10pm - in this instance it would be deemed 'reasonable' to claim for the cost of an evening meal. Even so - as with any expense you must have a receipt for anything you claim you cannot just claim a fixed amount every day.

However, and it is a big however, none of the above will apply to most contractors as you will be working in the same place each day and within the same range of hours each day. This means that you cannot claim for meals each day as a matter of course as you do not fit any of the criteria stated above. You certainly cannot claim for 3 meals a day without receipts under any circumstances.

[PAG]

I will try to clarify a little better. The reason an umbrella company has a dispensation is to allow them to process expenses without having to record each and every one on a P11D which would be prohibitively time consuming. In theory, any contractor claiming an expense which is not covered by the dispensation would be required to send in his receipts to the umbrella company who would then record it on a P11D. Your umbrella company should police all expenses that are claimed to ensure that this is what happens. They should also be checking that you are not claiming for expenses which the Inland Revenue would not permit. For instance, you can only claim for the cost of meals if you are on detached duty i.e. away from your every day place of work - you cannot claim a daily allowance for meals if say you both live and work in London - taken from a letter we received from the Inland Revenue regarding this very subject:

"I can confirm that contractors cannot automatically claim £21 per day (or any other amount) for each day they are at work. It is also worth saying the Inland Revenue would not give general approval of a company's expenses policy. A dispensation would never cover large amounts of unsupported expenditure"

This extract also covers the fact that the Inland Revenue will not allow expenses to be claimed without a supporting receipt and yes Money Money Money that does apply to food. You should remember that if you claim £100 per week "subsistence" without incurring an expense for that amount and therefore not having the receipts to support it you are effectively reducing your taxable income by £100 per week and this is fraudulent and likely to get you in trouble.

what if you lived in london and work in Milton Keynes, commute everyday ? I thought that claiming for food (lunch) was not allowed period, due to double benefit or something.

[LisaContractorUmbrella]

I will try to clarify a little better. The reason an umbrella company has a dispensation is to allow them to process expenses without having to record each and every one on a P11D which would be prohibitively time consuming. In theory, any contractor claiming an expense which is not covered by the dispensation would be required to send in his receipts to the umbrella company who would then record it on a P11D. Your umbrella company should police all expenses that are claimed to ensure that this is what happens. They should also be checking that you are not claiming for expenses which the Inland Revenue would not permit. For instance, you can only claim for the cost of meals if you are on detached duty i.e. away from your every day place of work - you cannot claim a daily allowance for meals if say you both live and work in London - taken from a letter we received from the Inland Revenue regarding this very subject:

"I can confirm that contractors cannot automatically claim £21 per day (or any other amount) for each day they are at work. It is also worth saying the Inland Revenue would not give general approval of a company's expenses policy. A dispensation would never cover large amounts of unsupported expenditure"

This extract also covers the fact that the Inland Revenue will not allow expenses to be claimed without a supporting receipt and yes Money Money Money that does apply to food. You should remember that if you claim £100 per week "subsistence" without incurring an expense for that amount and therefore not having the receipts to support it you are effectively reducing your taxable income by £100 per week and this is fraudulent and likely to get you in trouble.

[oraclesmith]

Sounds about right to me mate, But I wouldn't of thought you would need receipts for your food and stuff would you?, Just petrol and hotels etc?

But I'm sure you can just use your credit cards statements, Can't you?!?!?

The problem with credit card and bank statements is that they don't detail the type of expense incurred. For example you may have a bill for £50 from a restaurant, but that may have been for one person or four, it may have included a large amount of alchohol or gifts (a la Hard Rock Cafe) etc, etc.

I run a limited so I insist on retailers giving me proper VAT receipts for everything I spend on behalf of the business. Everything. It's no great hardship.

You only need petrol receipts if you're not claiming the 40p per mile allowance (recommended). You will always need to keep a proper log of business car journeys though, including date, destination, purpose and mileage. In my humble opinion.

[Money Money Money]

Firstly their dispensation is dated April 2005, so if you have a contract through them before around this time, I guess you will be on their old scheme.

I think this is what happens.....

HMRC give them (P4) the dispensation on the condition that they (P4) do checks to ensure their employees (ie. contractors) are not fiddling. They (P4) therefore advise contractors to keep the receipts themselves to prove they actually had an overnight stay or paid for a meal. They won't be bothered about the amount because they use per-diem rates, but they WILL be bothered that they can prove they did proper checks. If they don't do these checks and record them properly the HMRC will eventually withdraw the dispensation.

What P4 and others are really saying by 'not needing receipts' is that they don't need you to send them the receipts to claim the per-diem amount. However, if you have claimed the per-diem amount then you should keep the receipts in your own files so you can satisfy the random inspections which the HMRC insist P4 do to keep the dispensation for all their employees. When HMRC do their check on P4, they will need records of the checks done and results. If the records of these inspections show that P4 have caught you fiddling your expenses then the HMRC will have a good lead on you. They are unlikely to penalise P4 in these circumstances providing they (P4) have kept proper records and taken appropriate action against your fraudulent claim. Clear?

Good. When the HMRC do an enquiry into you the taxpayer, then they (HMRC) will be interested in the nature, frequency and circumstances surrounding your business expenditure, in which case a receipt is about the best proof you can get of a legitimate claim. You must keep them because P4 won't want them and won't want to keep them for you. You should get a copy of the P4 dispensation for your personal file too, because that proves that you can legitimately claim the per-diem fixed amount for each expensed event instead of the actual cost.

I'm not an expert on this, so this is all just my opinion, but it seems clear to me how it works. As far as I know, per-diems are always fixed nominal amounts.

What you absolutely must not do is to claim for things which didn't actually happen - eg. you can't commute from home and claim the per-diem amount for an overnight hotel or B&B stay. You can't claim for an expensed meal you haven't eaten. P4 might be seen as encouraging fraudulent claims in their 'no receipts' advertising but it all your risk. If you don't keep receipts or make claims for meals and accommodation you didn't purchase, then it's you in the poo, not P4.

In my opinion.

Sounds about right to me mate, But I wouldn't of thought you would need receipts for your food and stuff would you?, Just petrol and hotels etc?

But I'm sure you can just use your credit cards statements, Can't you?!?!?

Have contractorumbrella got a dispensation Lisa?

Or do you guys require sending in receipts?

Thanks

[oraclesmith]

Firstly their dispensation is dated April 2005, so if you have a contract through them before around this time, I guess you will be on their old scheme.

I think this is what happens.....

HMRC give them (P4) the dispensation on the condition that they (P4) do checks to ensure their employees (ie. contractors) are not fiddling. They (P4) therefore advise contractors to keep the receipts themselves to prove they actually had an overnight stay or paid for a meal. They won't be bothered about the amount because they use per-diem rates, but they WILL be bothered that they can prove they did proper checks. If they don't do these checks and record them properly the HMRC will eventually withdraw the dispensation.

What P4 and others are really saying by 'not needing receipts' is that they don't need you to send them the receipts to claim the per-diem amount. However, if you have claimed the per-diem amount then you should keep the receipts in your own files so you can satisfy the random inspections which the HMRC insist P4 do to keep the dispensation for all their employees. When HMRC do their check on P4, they will need records of the checks done and results. If the records of these inspections show that P4 have caught you fiddling your expenses then the HMRC will have a good lead on you. They are unlikely to penalise P4 in these circumstances providing they (P4) have kept proper records and taken appropriate action against your fraudulent claim. Clear?

Good. When the HMRC do an enquiry into you the taxpayer, then they (HMRC) will be interested in the nature, frequency and circumstances surrounding your business expenditure, in which case a receipt is about the best proof you can get of a legitimate claim. You must keep them because P4 won't want them and won't want to keep them for you. You should get a copy of the P4 dispensation for your personal file too, because that proves that you can legitimately claim the per-diem fixed amount for each expensed event instead of the actual cost.

I'm not an expert on this, so this is all just my opinion, but it seems clear to me how it works. As far as I know, per-diems are always fixed nominal amounts.

What you absolutely must not do is to claim for things which didn't actually happen - eg. you can't commute from home and claim the per-diem amount for an overnight hotel or B&B stay. You can't claim for an expensed meal you haven't eaten. P4 might be seen as encouraging fraudulent claims in their 'no receipts' advertising but it all your risk. If you don't keep receipts or make claims for meals and accommodation you didn't purchase, then it's you in the poo, not P4.

In my opinion.

[ASB]

Oraclesmith is quite correct - a dispensation counts for nothing as it is just an accounting tool for the umbrella company. You can only claim expenses that are allowed by the Inland Revenue and they must be supported by receipts

Bear with me here.

So what's the mechanics for getting caught? [I'm not suggesting anybody should fiddle of course].

If HMRC launch an aspect enquiry into the tax payer and focus on expenses is this the point at which you have to evidence therm (i.e. "covered by the dispensation" not good enough).

If HMRC launch a compliance review against the emloyer the employer is surely only going to be saying "covered by the dispensation". Presumably the compliance team pull a few random claims and demand the evidence from the taxpayer.

I know the "we have a 100 quid overnight dispensation" etc does not allow an individual to simply claim it, but I am just curious as to the mechanics of actually getting caught.

[Money Money Money]

I think they are just a standard PAYE umbrella co.

Its just their dispensation says they don't need to see the receipts, but I'm sure they must check!

Lets be honest, other umbrellas have lost their dispensations, So if they were dodgy I'm sure they would have had theirs taken!

[Maloty]

I was with Prosperity4 for my last contract and wasnt allowed to claim just anything I wanted. I was asked to keep the receipts?!?
They said that I should do this as they police expenses and will also do random checks on what I was claiming.

I could only claim my food and drink if my timesheets were within certain times.

I was told that the dispensation just made it so I didnt have to post in receipts all the time.

How's everyone claiming the full amount if this is the case?

Am I missing something here?

[LisaContractorUmbrella]

Oraclesmith is quite correct - a dispensation counts for nothing as it is just an accounting tool for the umbrella company. You can only claim expenses that are allowed by the Inland Revenue and they must be supported by receipts

[oraclesmith]

Some of these firms like to appeal to the tax dodger in all of us - the thought that we might be putting one over the HMRC and getting a bit more than other contractors if we go with their structure. That's why people keep asking about offshore schemes, EBT's and the like, thinking they are the new Phillip Green.

In reality, the umbrella's are very close in their offerings so unless you really care about a few quid here or there, you are best to go on their reputation amongst experienced contractors. You don't really want to have a badly run company managing your employment.

In my opinion.

[kirk]

This is old ground, but in my opinion their dispensation is quite normal - given that they are an employer of their brolly contractors. It's common for employers to offer per diem rates to staff which mean that providing the event actually incurred (eg. you actually stayed away for 3 days or whatever) then they pay the fixed amount per night/meal, which may bear no resemblance to what it actually cost you. It's used to simplify the employers admin and it allows employees to trade-off comfort versus cash.

Organisations that set a maximum amount per night instead of a fixed amount almost always end up paying out near to the maximum each time anyway because it's human nature for employees to spend all their 'allowance' on nice hotel rooms or three course meals.

If you've got receipts, then it would be prudent to keep them in case you get a personal tax investigation, not because you need to prove the amount incurred but you may need to prove you did in fact stay overnight or paid for a meal and you were therefore right to claim the per diem fixed amount.

As for P4's scare stories about limited's - that's just wrong.

In my opinion.

Hmm, never quite thought about it like that before but it makes perfect sense really, thanks for that! It puts my previous thoughts about P4 in a completely different light.

[oraclesmith]

If you're with a brolly, you'll be paying about as much tax as if you were PAYE. The only real difference is that brollies allow you a better expense policy, so in my opinion the only thing the HMRC are likely to go after is expense abuse.