Reply to: Umbrella company qs about income and claims

[Microtots'r'us]

Giant

Unfortunately some of these umbrellas never seem to get it right . However, when they do get pulled by HMRC at least the right tax gets paid so it does help the rest of us.

[TheFaQQer]

http://www.goumbrella.co.uk/contract..._said_what.php

[Metromaniac]

GoUmbrella put it into perspective

http://www.goumbrella.co.uk/contract..._said_what.php

[LisaContractorUmbrella]

I think the point with scale rates is that is is all or nothing. They are supposed to balance out across an entire organization and make things easier for everybody. Why does this matter? Say there is available a scale rate of £100 for an overnight stay - in order to satisfy HMRC you only have to be able to prove you spent something.

However, in order to maintain scale rates it is necessary for the holder (in this case the brolly) to satisfy HMRC that they are a fair average of what is being spent. This is supposed to be done by sampling.

It is comparatively recently that HMRC have extended the use of scale rates, previously they could be used for international travel by anybody, but had to be agreed with HMRC is they were prepared to allow their use.

Scale rates and dispensations are very different things.

Agree ASB but I think that the danger with scale rates can be that the initial sampling is not representative of the costs of most contractors - the receipts presented to the revenue over the sampling period would be likely to be only the highest values, not an average, which means that the scale rate does not balance out the expense claims of the organisation. The other issue with them is that some umbrella companies seem to impose mandatory scale rate expenses regardless of whether or not the contractor has incurred a cost or whether it would be allowable.

[ASB]

You can claim a scale rate without the need for receipts but if it did come to an HMR&C investigation you would still have to prove that you were entitled to make the claim in the first place. Just because an umbrella company has a scale rate in place doesn't mean that every contractor should claim it automatically every day.

I think the point with scale rates is that is is all or nothing. They are supposed to balance out across an entire organization and make things easier for everybody. Why does this matter? Say there is available a scale rate of £100 for an overnight stay - in order to satisfy HMRC you only have to be able to prove you spent something.

However, in order to maintain scale rates it is necessary for the holder (in this case the brolly) to satisfy HMRC that they are a fair average of what is being spent. This is supposed to be done by sampling.

It is comparatively recently that HMRC have extended the use of scale rates, previously they could be used for international travel by anybody, but had to be agreed with HMRC is they were prepared to allow their use.

Scale rates and dispensations are very different things.

[LisaContractorUmbrella]

ok as its still a slow news day so please can you clarify (for you know an old contractor 35 damn you!!)

Dispensations - the brolly has them which allows them to let certain expenses be claimed without the brolly having to provide the receipts? and they also do not need to declare these on some end of year tax return forms? (p11d springs to mind but that may be rubbish!)

These dispensations - is this where the brollies get their you can claim x amount of subsistence per day for up to 10 hours and y amount for over 10 hours etc etc?

But in general you can try and claim for whatever expenses you want - the brolly will decide whether or not to allow them and what the financial impact of claiming them will be on their bottom line.
?

Ta

35's not old - you're in your prime

In normal accountancy practise when employees claim expenses they will be recorded on (you were right) a P11D, the accountant will match the expense claim to the receipts provided and the P11Ds will be submitted to HMR&C. Umbrella companies have hundreds or even thousands of employees so completing P11ds for all their expense claims would be a really time consuming job - hence the dispensation. Its only purpose is to save accountants time - it has no bearing at all on the expenses that the companies' employees can claim. The reason that some brollies have amounts stated on their dispensations is because, in order to get one, you have to submit 3 months worth of receipts to HMR&C and, in some cases, they will look at the highest amounts and use that as the maximum that employees can claim before the brolly has to record expenses on a P11D. So, basically an employee of an umbrella company can claim any expense that would be considered allowable by HMR&C but if it is not on the brolly's dispensation they would need to provide receipts and, yep you've guessed it, it would have to go on a p11D.

[original PM]

ok as its still a slow news day so please can you clarify (for you know an old contractor 35 damn you!!)

Dispensations - the brolly has them which allows them to let certain expenses be claimed without the brolly having to provide the receipts? and they also do not need to declare these on some end of year tax return forms? (p11d springs to mind but that may be rubbish!)

These dispensations - is this where the brollies get their you can claim x amount of subsistence per day for up to 10 hours and y amount for over 10 hours etc etc?

But in general you can try and claim for whatever expenses you want - the brolly will decide whether or not to allow them and what the financial impact of claiming them will be on their bottom line.
?

Ta

[LisaContractorUmbrella]

mmm splitting hairs now!

I was talking in general terms of brolly users - probably legal limit is not the correct phrase - more umbrellas advertised upper dispensation limit.


@ Brollyman



Yes this would I imagine reduce customer complaints and lead to a more satisfactory customer experience!

I suppose it must seem picky but I believe that it is a huge misconception with many new contractors and even some older ones And at the end of the day it will be the contractor in trouble and not the brolly if they claim expenses they shouldn't - that's why I spend time on here trying to dispel the myths surrounding the industry. To really labour the point - a dispensation has nothing to do with the levels of expenses that can be claimed through an umbrella co.

[LisaContractorUmbrella]

If they have a scale allowance agreed with HMRC, then you should be able to claim it, though.

However, I refer you to Mal's earlier post.

You can claim a scale rate without the need for receipts but if it did come to an HMR&C investigation you would still have to prove that you were entitled to make the claim in the first place. Just because an umbrella company has a scale rate in place doesn't mean that every contractor should claim it automatically every day. Scale rates, like dispensations, were introduced (by HMR&C for the own purposes originally) to reduce paperwork and not for any other reason. As I understand it within HMR&C it is a disciplinary matter for an employee to claim a scale rate inapprorpriately i.e. they have spent more on subsistence travelling to a temporary work place than they would have done if they had been in their permanent workplace. Therefore, if you take sandwiches to work every day you cannot claim a scale rate payment. If you always have a sarnie from M&S you also would not be able to claim a scale rate as there would be no additional cost. You also have to consider that, as contractors working through an umbrella company are always at a temporary location how they would prove that they had spent more than if they were at a permanent location - virtually impossible I would have thought. I would also think that, at some point, that is exactly the sort of explanation that HMR&C will be needing.

[TheFaQQer]

Just to clarify the final point - just because an umbrella company has £21 per day for meals on its dispensation does not mean that you are entitled to claim £21 per day on food; HMR&C criteria for claiming meals as an expense would still have to be met.

If they have a scale allowance agreed with HMRC, then you should be able to claim it, though.

However, I refer you to Mal's earlier post.

[original PM]

There is no such thing as a legal limit for expenses - you can spend whatever you like but whether it will be processed as an expense or whether it will be a BIK is a different matter.

mmm splitting hairs now!

I was talking in general terms of brolly users - probably legal limit is not the correct phrase - more umbrellas advertised upper dispensation limit.



@ Brollyman

I can only speak from my own firm's point of view - we take a conservative approach at the illustration stage and will drill down to the ACTUAL expenses the contrator is likely to incur when they start their role. Saves a lot of angry calls as in nine cases out of ten, when they get their first payslip, the net figure is the same as the illustrated figure.

Yes this would I imagine reduce customer complaints and lead to a more satisfactory customer experience!

[LisaContractorUmbrella]

It is covered in stickeys etc but it seems to be a slow news day.

Problem is during the sales process the take expected take home pay figure is artificially enhanced by putting expenses in up to the legal limit - and thus when the punter gets his or her first pay cheque it is nowhere near the advertised value and we get posts on here.

Bunch of robbing tw@s

There is no such thing as a legal limit for expenses - you can spend whatever you like but whether it will be processed as an expense or whether it will be a BIK is a different matter.

[brollyman]

It is covered in stickeys etc but it seems to be a slow news day.

Problem is during the sales process the take expected take home pay figure is artificially enhanced by putting expenses in up to the legal limit - and thus when the punter gets his or her first pay cheque it is nowhere near the advertised value and we get posts on here.

Bunch of robbing tw@s

That's exactly the point I'm making.

I know most umbrellas tend to get tarred with the same brush but a lot now seem to be cleaning up their act where it comes to illustrations.

I can only speak from my own firm's point of view - we take a conservative approach at the illustration stage and will drill down to the ACTUAL expenses the contrator is likely to incur when they start their role. Saves a lot of angry calls as in nine cases out of ten, when they get their first payslip, the net figure is the same as the illustrated figure.

[Brussels Slumdog]

Not difficult to eat £21 per day

Just to clarify the final point - just because an umbrella company has £21 per day for meals on its dispensation does not mean that you are entitled to claim £21 per day on food; HMR&C criteria for claiming meals as an expense would still have to be met.

I don't find it difficult to eat £21 per day plus I need to keep receipts anyway
for Belgian tax reasons.
In order to claim under double taxation rules,I have to be prepared to prove
to the Belgians that I was phsically in the UK.

Golden rule "Always keep receipts in spite of what the umbrella tells you"
This could be difficult if you are an Aussie backpacker renting a bed sit
in London on a 2 year contract.
Where do you put all those receipts in that backpack?

[original PM]

This is all sounding very familiar and surely covered in the stickys....

Any (reputable) umbrella will tell all contractors to claim only what they have actually spent. There is nothing worse for umbrellas who make huge assumptions at the registration phase than receiving countless calls from contractors complaining that they have not been paid as much as the amount given in their initial illustration.

The simple rule is claim for what you have spent, no more, no less and only if the expenses is allowable under HMRC regulations.

We are obliged to audit expense claims and if a contractor appears to be claiming up to the dispensation amount every day, then they will single themselves out for investigation. We can (and have) reported contractors who were unable to show valid receipts for their claims. It's the contractor who bears the liablity, not us.

It is covered in stickeys etc but it seems to be a slow news day.

Problem is during the sales process the take expected take home pay figure is artificially enhanced by putting expenses in up to the legal limit - and thus when the punter gets his or her first pay cheque it is nowhere near the advertised value and we get posts on here.

Bunch of robbing tw@s