Umbrella mileage expenses question.

[Contreras]

Risk vs reward needs to be considered.

Lets look at what you can gain by switching umbrella (and I'm making some assumptions here):

You've reached 10k miles in about 8 months (Apr to Nov inclusive). That suggests to me that you are doing around 1,250 business miles per month.

There's 4 complete months from now to the start of the new tax year which means you might do 5,000 business miles between now and then. You could therefore gain tax relief on £1,000 (5k miles at 20p per mile).

So the actual gain could be between £200 and £400 dependent on your highest rate of tax.

Is that worth the risk?

That depends on the risk.

HMRC chasing after umbrella employees? It's possible I guess but there would need to be other circumstances to trigger the enquiry as they have bigger fish to fry. And if the guidelines say you're not doing anything wrong then yeah the risk from HMRC is low.

So it boils down to whether you're happy with the current umbrella service and the 'risk' that the new umbrella turns out to be a bad choice. A bit like changing bank account for a higher savings rate.

[ASB]

If you are creating an artificial environment so that you minimize the tax that you pay, then you need to read up on the Ramsay principle to understand why that won't work.

I am sceptical as to whether they could apply Ramsay or not. Generally there are rather more precise pieces of legislation that are available to justify their approach.

There is a very good reason why HMRC don't just shout "Ramsay". It's difficult to make it stick.

If it had any easy sharp teeth it would rather have removed the need for IR35, BN66, S660 challenge and all sorts of other nasties.

[DirtyDog]

I have called my unbrella, and they've told be they don't know - hence my question here. I am aware of the two contracts point with an umbrella (read about that on this forum :-) so I'm setting up a quick temporary contract to keep everything above board. I don't believe there's any limitation on how long or short the second contract has to be.

If you are setting up a quick temporary contract with another umbrella, then you need to be working more than one contract with them and have worked more than one contract with the current umbrella, or you'll find that you fail the temporary workplace test with one or both.

If you are creating an artificial environment so that you minimize the tax that you pay, then you need to read up on the Ramsay principle to understand why that won't work.

There's nothing to stop you doing it, and there's a chance that you won't get caught for it. But if you're going to follow that line of thought, then the same applies to many other forms of crime.

[One Click Group]

Risk vs reward needs to be considered.

Lets look at what you can gain by switching umbrella (and I'm making some assumptions here):

You've reached 10k miles in about 8 months (Apr to Nov inclusive). That suggests to me that you are doing around 1,250 business miles per month.

There's 4 complete months from now to the start of the new tax year which means you might do 5,000 business miles between now and then. You could therefore gain tax relief on £1,000 (5k miles at 20p per mile).

So the actual gain could be between £200 and £400 dependent on your highest rate of tax.

Is that worth the risk?

[mudskipper]

I think this is where one gets into arguably 'morally dubious' ground. However, as has been heatedly debated many times, everyone has a different idea of what's right and what's wrong and all you are obliged to do is follow the rules as they stand. It does sound like you've found a loophole that you can exploit. However, be aware that the two year rule doesn't reset with a change of employer (I'm pretty sure of this, but feel free to find a linky to prove me wrong!)

[ASB]

Killingtime, you are strictly correct. However did you give bmrc full context? I doubt if it would make much difference to the answer you got from them, but would be useful due diligence.

If the inspector comes looking he is likely to look through it. So there could be some difficulties persuading them not to.

But, all that said, if you believe the written rules give you a get out do it. Jltimately the worst that is ever likely to happen is repaying the tax on the difference.

[northernladuk]

northernladuk,

I have called my unbrella, and they've told be they don't know - hence my question here. I am aware of the two contracts point with an umbrella (read about that on this forum :-) so I'm setting up a quick temporary contract to keep everything above board. I don't believe there's any limitation on how long or short the second contract has to be.

There isn't but if it is a sham to gain a tax advantage you could get in to trouble. I am sure your umbrella might have an issue if this isn't all above board. Depends on what you mean about you setting up a contract I guess.

[killingtime]

All,

I've just called the self assessment helpline, and they have confirmed that the mileage allowance is based on your employer, and not on you as an individual in any tax year.

Initially, I was told it was based on the individual, but I pointed out the bit about MARs and they came back after 10 minutes and said I was correct, and it's based on the company, and the mileage resets with the new employer.

LisaContractorUmbrella,

The two employers just have to be independent of each other. Technically, as the umbrella holds your P45, you work for the umbrella and not the client, so the client shouldn't matter. Of course, there's nothing to stop a tax inspector deciding otherwise - bit of a grey area IMHO. Does anyone know a someone who's been pulled up on this point and fined? How likely is this scenario to happen?

northernladuk,

I have called my unbrella, and they've told be they don't know - hence my question here. I am aware of the two contracts point with an umbrella (read about that on this forum :-) so I'm setting up a quick temporary contract to keep everything above board. I don't believe there's any limitation on how long or short the second contract has to be.

[northernladuk]

Why not call your umbrella. They are your employer and they should sort out all your questions like this.

How many contracts have you done through your umbrella? If you have done just one and then leave you won't be able to claim any mileage at all.

[LisaContractorUmbrella]

This gives more information Employees using own vehicles for work: more than one employment: associated employments

If you were to move employer i.e. umbrella company AND were to change assignments - so you were travelling to a different location then the rates could reset. As the umbrella company is your employer, the assignments you work on are all considered to be within the same employment. If you were to move umbrella companies but worked at the same location or for an associated company the reset wouldn't apply.

[killingtime]

Moving from one umbrella company to another will make no difference - more info here HM Revenue & Customs: Mileage expenses for business travel in employees? own vehicles

Also, you will not need to complete a P11d - you are employed by the umbrella company.

Hello LisaContractorUmbrella,

I'd be interested to know where you found this information out. The link you posted doesn't describe multiple employments in the current tax year, it just details how a single employer is to calculate your MAPs or AMAPs for a given tax year.

I've done some more digging around, and I've found this:

HM Revenue & Customs: Tax relief for business mileage or fuel

It discusses Mileage Allowance Relief (MAR), and not Approved Mileage Allowance Payments (AMAPs), but the two are connected as you can claim MAR if you fill out a self assessment.

You work out what your employer gave you for business mileage in your own vehicle (if anything), and what you were allowed to claim (45\25p), and then you get a tax rebate on the difference (if I've understood the HMRC page correctly - there's an example).

At the bottom of the page there is the following section:

*If you work for different employers*

*If you have two or more employers which are independent of each other, you're due the higher mileage rate for business mileage in each job.*

So, as an individual, I take it you're allowed the higher rate when you start with a new employer in any tax year, as you'd be able to claim the difference back using self assessment anyway.

I tried calling HMRC, but couldn't get through to anyone. WIll try sending them an email.

[LisaContractorUmbrella]

Moving from one umbrella company to another will make no difference - more info here HM Revenue & Customs: Mileage expenses for business travel in employees? own vehicles

Also, you will not need to complete a P11d - you are employed by the umbrella company.

[aardvark]

Hello,

First post on the forum.

I'm a UK contractor with an umbrella, and I have an accounting question.

I've reached my 10k mileage limit with my existing umbrella, so I'm paid the lower rate per mile now (0.25).

My mileage is offset against my salary.

My question is; if I change my umbrella company, will I be able to claim the higher rate again, or does the lower rate limit follow you from one company to the next in any tax year?

My current contract is up at the end of this week, so it makes sense to act now if it's legal.

If it's not legal and the tax man sends me a bill when I submit my P11D next April, then there's no point.

Thanks.

The mileage limit is per year. Also, be aware of the 24 month rule - you can only claim mileage if you're in one geographic location for < 24 months. In addition, you can only claim mileage if you have more than one contract with the umbrella.

[killingtime]

Hello,

First post on the forum.

I'm a UK contractor with an umbrella, and I have an accounting question.

I've reached my 10k mileage limit with my existing umbrella, so I'm paid the lower rate per mile now (0.25).

My mileage is offset against my salary.

My question is; if I change my umbrella company, will I be able to claim the higher rate again, or does the lower rate limit follow you from one company to the next in any tax year?

My current contract is up at the end of this week, so it makes sense to act now if it's legal.

If it's not legal and the tax man sends me a bill when I submit my P11D next April, then there's no point.

Thanks.