Reply to: Leaving umbrella co - charges and no expenses?

[Dominic Connor]

Bizarre

I can see the logic of the HMRC even if it is stupid.

So I've learned something.

[Wanderer]

No the OP won't be entitled to claim expenses during the notice period - tbh I wasn't 100% convinced but I ran it past one of my guys here who is an ex-HMRC tax inspector and he has confirmed it

Thanks for that, Lisa.

So there we have it folks! At least two major umbrellas work this way, I think they are wrong and I am right but they are the ones who get to interpret HMRC's rules not me so they get the final say.

If people read HMRC's guidance that I cited and they agree with my opinion that the umbrellas are wrong then the work around is DO NOT resign from an umbrella when your contract ends. Continue on the presumption that you are going to have other engagements and only resign after they have paid your final salary payment.....

[LisaContractorUmbrella]

So Parasol's reading of this is that your LAST place of work is your permanent place of work for the entire employment duration even if you have multiple engagements while working for the umbrella? That's not what HMRC say, they say this rule only applies if this is your only work place for the duration of the employment. Read the reference in the contractor doctor article to EIM32125 which says:

A period of attendance at a workplace for a limited duration does not make that place a temporary workplace if the employee attends in the course of a period of continuous work (see EIM32080) that can be expected to last for all, or almost all, of the period for which he or she is likely to hold, or continue to hold, that employment.

The case in point is that the employee attended multiple workplaces so it can be a temporary workplace and travel and subsistence is allowable.

So, at resignation time: single engagement = no more expenses, multiple engagement = expenses allowed.

Blah, the brollies don't care about all this. It's no loss to them and their customer is terminating their relationship anyway so why bother with the admin of figuring out if they worked single or multiple engagements? They will just have a blanket rule that if you resign then your last travel/subsistence claim is disallowed - they don't care if it's right or wrong, that's the end of the story.

Not true! We have to care about this sort of thing because if we get it wrong the folks at HMRC won't take too kindly to it and would be likely to

[LisaContractorUmbrella]

That was my first impression too but then jonnyguitar clarified that this was NOT his only assignment or workplace and that he had in fact done several assignments while working for the umbrella.

So in the light of this, do you think the expenses should be allowed?

No the OP won't be entitled to claim expenses during the notice period - tbh I wasn't 100% convinced but I ran it past one of my guys here who is an ex-HMRC tax inspector and he has confirmed it

[Wanderer]

Interesting - I wonder how many people know that.

To be fair, I think most brollies make it clear that you can't claim subsistence from the time that you know that this will be your only engagement OR if you expect to work in one place for more than 24 months.

So the key is to claim outstanding expenses before giving your notice. Too late for the OP though

Correct.

So what could happen is that an employee does a single contract through an umbrella which comes to an end but the employee DOES NOT RESIGN because they intend to take further engagements through the umbrella. (They might think it's unlikely that they will work through the brolly again but hey - never say never).

Some time after they get their expenses approved and final paycheck they change their mind and decide that they won't be working through that umbrella again and they resign.

No rule is broken as long as they can prove that there was the expectation to do multiple assignments since HMRC say that "the effect of the rule is not altered where the expectation does not match the outcome" see EIM32084.

Of course there would be trouble if HMRC prove that the employee never intended to use the umbrella beyond the single engagement but how could they do that? There would always be reasonable doubt. Even if the employee had formed a LTD company, you never know - they may have had a few small IR35 caught jobs lined up that they would have put through the umbrella (except the jobs never came to fruition, oh well).

[Wanderer]

It's all in here

Contractor Doctor: Why won’t my umbrella let me claim expenses during my notice?

So Parasol's reading of this is that your LAST place of work is your permanent place of work for the entire employment duration even if you have multiple engagements while working for the umbrella? That's not what HMRC say, they say this rule only applies if this is your only work place for the duration of the employment. Read the reference in the contractor doctor article to EIM32125 which says:

A period of attendance at a workplace for a limited duration does not make that place a temporary workplace if the employee attends in the course of a period of continuous work (see EIM32080) that can be expected to last for all, or almost all, of the period for which he or she is likely to hold, or continue to hold, that employment.

The case in point is that the employee attended multiple workplaces so it can be a temporary workplace and travel and subsistence is allowable.

So, at resignation time: single engagement = no more expenses, multiple engagement = expenses allowed.

Blah, the brollies don't care about all this. It's no loss to them and their customer is terminating their relationship anyway so why bother with the admin of figuring out if they worked single or multiple engagements? They will just have a blanket rule that if you resign then your last travel/subsistence claim is disallowed - they don't care if it's right or wrong, that's the end of the story.

[mudskipper]

It's all in here

Interesting - I wonder how many people know that.

So the key is to claim outstanding expenses before giving your notice. Too late for the OP though.

[northernladuk]

That was my first impression too but then jonnyguitar clarified that this was NOT his only assignment or workplace and that he had in fact done several assignments while working for the umbrella.

So in the light of this, do you think the expenses should be allowed?

It's all in here.

[Wanderer]

Travel and subsistence expenses are only allowable when the contractor is travelling to a temporary location and a workplace to which you travel every day knowing that it will be the only workplace you travel to for the remainder of your employment with the umbrella company means that it will be classified by HMRC as a permanent workplace. Therefore, the umbrella company, correctly, disallowed the travel and subsistence costs.

That was my first impression too but then jonnyguitar clarified that this was NOT his only assignment or workplace and that he had in fact done several assignments while working for the umbrella.

So in the light of this, do you think the expenses should be allowed?

[LisaContractorUmbrella]

Perhaps you could explain to me why he could not claim expenses for the last two months of his contract ?

The concept of an over-arching contract is extremely complicated but, basically, it gives continuity of employment to a contractor who is working on a series of assignments under a global employment contract. Travel and subsistence expenses are only allowable when the contractor is travelling to a temporary location and a workplace to which you travel every day knowing that it will be the only workplace you travel to for the remainder of your employment with the umbrella company means that it will be classified by HMRC as a permanent workplace. Therefore, the umbrella company, correctly, disallowed the travel and subsistence costs.

[LisaContractorUmbrella]

I'd be really suprised if this were true, as a simple permie you can submit expenses, do you have this in writing ?

I ask because I'm looking at writing up some more "life as a contractor" articles for The Register and scams make for good pieces.

This is not a 'scam' - an umbrella company receives no benefit from contractors' expense claims. Either they are a direct reimbursement of costs from the end client in which case, if they are no longer allowable for whatever reason, they will be subject to tax and NI or they are non-chargeable and the contractor will receive tax relief on the cost, again assuming that it's allowable.

[Dominic Connor]

I'm here to be educated...

Perhaps you could explain to me why he could not claim expenses for the last two months of his contract ?

[malvolio]

I'd be really suprised if this were true, as a simple permie you can submit expenses, do you have this in writing ?

www.hrmc.gov et seq.

I ask because I'm looking at writing up some more "life as a contractor" articles for The Register and scams make for good pieces.

You should maybe start with understanding the differences between employee and contractor then...

Employees have a clear, permanent workplace, therefore any business travel is to a temporary one, subject to the 24 month rules. That doesn't always work for contractors, especially those using umbrellas, where definitions of permanent and temporary workplaces can be confusing. But read my first answer in this thread for the real position (although it turns out that it probably doesn't apply to the OP).

BTW if you want some solid research material to work with, I suggest you go talk to the PCG.

[Dominic Connor]

Name of the Umberall Co.

Hi everyone. I just gave notice on my brolly company (should have done it months ago, but still) and starting my own Ltd co. My notice period to the umbrella co is 4 weeks. My questions are:

1. They say that now I've given notice I cannot submit any expenses for the remaining 4 weeks - this covers 2 months invoices, which leaves me really out of pocket.

Jonny

I'd be really suprised if this were true, as a simple permie you can submit expenses, do you have this in writing ?

I ask because I'm looking at writing up some more "life as a contractor" articles for The Register and scams make for good pieces.

[Wanderer]

I have had several assignments under the umbrella. So does this mean they are not correct about my expenses?

Presuming you are talking about travel and subsistence claims for working at a temporary workplace, HMRC rules are that the umbrella must disallow and further travelling and subsistence expenses if the intention or the reality of the relationship is that you only ever work for a single client through them (or if the engagement will exceed 24 months but I digress).

However, as stated in EIM32080, the umbrella should allow the expenses if you worked multiple contracts at multiple client locations. I think the answer is to talk to the umbrella company and get their reasons for refusing to allow the latest expenses. I think they have probably automatically disallowed this to take a conservative approach and this can probably be sorted out pretty easily if you point out that the expenses are still allowable.

1. Your brolly is correct, as soon as you make them aware that it is your intention to leave; the temp workplace becomes permie and so for that reason you would be unable to offset any further expenses.

This is only true if there is a single engagement through the umbrella company or if the worker spends more than 24 months at one site. This does NOT appear to be the situation we have here.

You say "this covers 2 months invoices, which leaves me really out of pocket" - Yes its nice to receive the tax benefit from offsetting your expenses, but it sounds like you are really dependant on them? They are costs you will incur to perform your duties and so if those costs are that high that it is causing you a financial burden when they are not offset then you really should consider getting a higher paid contract or going back to being permie (where expenses won't be an issue)!

Depending on the income, the tax relief on expenses could be as high as 50% so I would say that it could leave someone substantially out of pocket and it's worth following up.

2. Presumably you will be employed under some form of contract of employment with the brolly, so naturally one would expect this arrangement to facilitate a provision for giving notice to terminate, although in my experience most brollies won't allow for termination part way through a contract and so you should count yourself lucky if your brolly is willing to let you go so easily.

The suggestion that a contractor should be somehow beholden to an umbrella company astounds me. It would be a pretty abusive relationship if umbrellas worked this way. The umbrella isn't doing the contractor a great favour by "employing" them and the contractor is NOT subordinate to the umbrella. The umbrella should count them selves lucky that the contractor has chosen to use their services.

The contractor should be able to terminate their relationship with the umbrella at any time (subject to a reasonable notice, say 7 or 30 days depending if they are on weekly or monthly payroll). If the umbrella say you need to give 4 weeks notice that you will no longer use their service or there is a leaving fee then that's fine - as long as it's clearly stated up front in their terms of engagement.

Even when using an umbrella you have to avoid the permie think. Contractors are effectively working for themselves and offering services to the end client. All the umbrella (or agency for that matter) is doing is acting as an intermediary. The contractor pays them for this so it's the contractor who wears the trousers and calls the shots.