Reply to: Umbrella Companies that process expenses properly

[breaktwister]

Just starting to sink in now eek, wow, that is a death knell to the world of clients looking to pay a daily rate, hire for niche roles all over the UK, and do so inside IR35 while expecting the contractor to foot the bill for "two to three days a week in the office". I will have to head to the perm job boards for the first time in a long time.

[eek]

The relevant legislation is here: https://www.legislation.gov.uk/ukpga...ravel-expenses. s337 and s338 are entirely sensible but it seems they added s339A for "employment intermediaries" at some point, and although that section does not specifically say that s337 and s338 do not apply to umbrella workers for some reason the industry is treating it as such. I will do some more digging around this 339A but it certainly seems at this stage that I will be applying for perm roles.

EDIT: the more I read about s339A the more I think the issue lies elsewhere. At this point I am at a loss as to where the legisation states that umbrella companies cannot process properly incurred travel expenses outside the normal commute. As to the writer from your link eek "due to tightening of legislation (which legislation!) a compliant umbrella company will not allow you to claim these (legally allowable) expenses through them".

Again I will repeat "as an employee you need to be paid a consistent daily / weekly wage (including bonuses where appropriate) for the work you do."

And if you are using part of the money received to pay fluctuating expenses that simply isn't possible.

That has nothing to do with expenses - it has everything to do with generic employment law...

As I hinted early - one umbrella firm got round this issue for a while but has stopped doing so for multiple reasons. One of which was that their "with SDC expenses" service was seriously seriously profitable for the umbrella owner but people noticed....

[breaktwister]

The relevant legislation is here: https://www.legislation.gov.uk/ukpga...ravel-expenses. s337 and s338 are entirely sensible but it seems they added s339A for "employment intermediaries" at some point, and although that section does not specifically say that s337 and s338 do not apply to umbrella workers for some reason the industry is treating it as such. I will do some more digging around this 339A but it certainly seems at this stage that I will be applying for perm roles.

EDIT: the more I read about s339A the more I think the issue lies elsewhere. At this point I am at a loss as to where the legisation states that umbrella companies cannot process properly incurred travel expenses outside the normal commute. As to the writer from your link eek "due to tightening of legislation (which legislation!) a compliant umbrella company will not allow you to claim these (legally allowable) expenses through them".

[eek]

Thanks again eek. The problem I see is that IR35 determination is outside the remit of most tech hiring managers, they will have been told, blanket decision if you like, that all roles are to be inside IR35.

Yep - I can see that but it makes their desire for the work to be done as a fixed fee impossible so the risk needs to sit at either the agency or end client level.

And we all know no agency is going to accept it so it will end up at the end client with you filling in piles of expense claims.

Edit - a quick google brought up Claiming expenses as an Umbrella company employee | An Award Winning Umbrella Company | Contractor Umbrella which contains the following

. Whereas Umbrella companies were previously able to allow contractors to claim many expenses in addition to travel and subsistence, this is no longer the case. Expenses can still be paid – but these must be approved by your recruitment agency and paid over in addition to your normal daily or hourly pay rate. This matches the treatment that permanent, full-time employees can expect – expenses must be submitted, approved and reimbursed on top of salary. These are known as chargeable expenses.

...

As above, expenses must be approved and paid by your recruitment agency – due to the tightening of legislation, a compliant umbrella company will not allow you to claim these directly through them.

[breaktwister]

Thanks again eek. The problem I see is that IR35 determination is outside the remit of most tech hiring managers, they will have been told, blanket decision if you like, that all roles are to be inside IR35.

[eek]

Who knows eek, the client decided that the role is inside, I believe a lot of it is direction from Legal/HR. The umbrellas must have been given guidance from HMRC as I have checked with three firms and they all say "if SDC applies then there is no travel expenses" which is not the correct test in law, the correct test is whether the travel is part of the ordinary commute or not. Perhaps I am missing something? Is there any use writing to the Umbrella regulator or are they as useless as all other regulators?

There is no such thing as an umbrella regulator - FCSA / Professional Passport are Accreditations

As for what you missed - I think it's this bit "as an employee you need to be paid a consistent daily / weekly wage (including bonuses where appropriate) for the work you do." (and that's a very large can of worms when it comes to a number of issues umbrella firms are trying to deal with at the moment). So while that SDC comment isn't 100% correct it's correct as far as compliant umbrellas are concerned.

Basically your only option is for the end client or agency to swallow the risk and for you to identify a daily rate before expenses that is acceptable and move the risk elsewhere.

I would throw it back to their Legal / HR - what they are asking for is impossible - so it's their move.

[breaktwister]

Who knows eek, the client decided that the role is inside, I believe a lot of it is direction from Legal/HR. The umbrellas must have been given guidance from HMRC as I have checked with three firms and they all say "if SDC applies then there is no travel expenses" which is not the correct test in law, the correct test is whether the travel is part of the ordinary commute or not. Perhaps I am missing something? Is there any use writing to the Umbrella regulator or are they as useless as all other regulators?

[eek]

What is the usual process for claiming expenses? The end client wants the daily rate to cover it all but send me to offices all over the UK. Easy as pie to deal with via Ltd, but who in the chain is responsible for carving those expenses out of the daily rate before PAYE is applied?

No-one because that isn't possible under both HMRC and employment rules....

Edit - to add the reason why

As a limited Company you take all the risk but that isn't possible as an employee because you need to be paid both minimum wage and a consistent weekly wage (including bonuses where appropriate) for the work you do.

So the risk needs to reside elsewhere in the chain with you receiving a consistent weekly wage with the risk (profit / loss) on the expenses taken from elsewhere.

Now a few umbrellas did have a model that allowed a fixed amount to be kept to one side for expenses but there are so many problems there I don't want to begin covering them...

1 question I would ask is why this is inside IR35 - the risk on expenses is financial and points almost by itself into the contract being outside IR35.

[breaktwister]

What is the usual process for claiming expenses? The end client wants the daily rate to cover it all but send me to offices all over the UK. Easy as pie to deal with if the contract was Outside via Ltd, but for an inside contract who in the chain is responsible for carving those expenses out of the daily rate before PAYE is applied?

[Acme Thunderer]

You should be submitting a hotel bill for £120 because that is what the disbursement rate for a hotel is.

so the screw up is somewhere between you and the agency because the umbrella is doing exactly what it’s supposed to do - which is collect the VAT paid on the invoice and send it to HMRC.

I do submit a bill for £120, but in common with most expenses systems I have used, you have to enter the net and VAT.

Funnily enough I remembered us having a similar conversation about this subject a year ago, and you supported the position that the VAT should have been paid to me.

https://forums.contractoruk.com/umbr...ml#post2862608

[eek]

Malvolio - I'm working an inside IR35 Contract through an umbrella company so don't raise invoices. I also have never worked for a financial client, all my end clients are VAT registered so they get to claim the VAT back.

I am being left out of pocket as the VAT part of my expenses i.e. the VAT charged to me by the hotel is not getting paid back to me. The umbrella company will make money on it as the they will reclaim the VAT for the Hotel via the VAT return.

Example
I stay in hotel cost £100 + VAT £120 in total
I submit expense claim for Hotel listing £100 net and £20 VAT
Self Bill Invoice gets raised for £100 Hotel Bill. VAT is then added to the invoice to take it back to £120
Client pays £100 plus £20 VAT
Umbrella only pays me £100, retains £20 VAT for HMRC
Umbrella company then claims back the Hotel Bill VAT, thus offsetting the £20 they are holding for HMRC. Umbrella is now up £20 on the deal at my expense

You should be submitting a hotel bill for £120 because that is what the disbursement rate for a hotel is.

so the screw up is somewhere between you and the agency because the umbrella is doing exactly what it’s supposed to do - which is collect the VAT paid on the invoice and send it to HMRC.

[malvolio]

Malvolio - I'm working an inside IR35 Contract through an umbrella company so don't raise invoices. I also have never worked for a financial client, all my end clients are VAT registered so they get to claim the VAT back.

I am being left out of pocket as the VAT part of my expenses i.e. the VAT charged to me by the hotel is not getting paid back to me. The umbrella company will make money on it as the they will reclaim the VAT for the Hotel via the VAT return.

Example
I stay in hotel cost £100 + VAT £120 in total
I submit expense claim for Hotel listing £100 net and £20 VAT
Self Bill Invoice gets raised for £100 Hotel Bill. VAT is then added to the invoice to take it back to £120
Client pays £100 plus £20 VAT
Umbrella only pays me £100, retains £20 VAT for HMRC
Umbrella company then claims back the Hotel Bill VAT, thus offsetting the £20 they are holding for HMRC. Umbrella is now up £20 on the deal at my expense

Except the VAT is not and never was your money. As an umbrella user you are not VAT registered so you can't reclaim it any more than you can claim it off your Tesco bill.

Someone has to pay the VAT: in your case, it's you.

[Acme Thunderer]

You are absolutely not charging VAT on VAT. Your costs including VAT are what YourCo has spent to deliver the service and is what you should bill. Any invoice you raise then has to have VAT added to it at the appropriate rate. If someone does the sums across the whole supply chain, the balance of input and output VAT payments to HMRC will be the same anyway.

I believe this has been driven by the big financial clients who cannot be VAT registered (although the small holding companies who process such costs can,...) and agencies have been brainwashed by them.

But it is seriously not worth bothering about. Any variation in your invoice value will only be in the VAT element, and you recover all of yours anyway. If the umbrella is making money on it (and they aren't...) that would be evasion - but that is not your problem.

Malvolio - I'm working an inside IR35 Contract through an umbrella company so don't raise invoices. I also have never worked for a financial client, all my end clients are VAT registered so they get to claim the VAT back.

I am being left out of pocket as the VAT part of my expenses i.e. the VAT charged to me by the hotel is not getting paid back to me. The umbrella company will make money on it as the they will reclaim the VAT for the Hotel via the VAT return.

Example
I stay in hotel cost £100 + VAT £120 in total
I submit expense claim for Hotel listing £100 net and £20 VAT
Self Bill Invoice gets raised for £100 Hotel Bill. VAT is then added to the invoice to take it back to £120
Client pays £100 plus £20 VAT
Umbrella only pays me £100, retains £20 VAT for HMRC
Umbrella company then claims back the Hotel Bill VAT, thus offsetting the £20 they are holding for HMRC. Umbrella is now up £20 on the deal at my expense

[malvolio]

I don't think I have every had a client that accepts VAT being charged on VAT for expenses. The expenses are charged back net of VAT at invoice line item level. They then have VAT added to them. Anything else allows the umbrella company to make a profit on the VAT.

You are absolutely not charging VAT on VAT. Your costs including VAT are what YourCo has spent to deliver the service and is what you should bill. Any invoice you raise then has to have VAT added to it at the appropriate rate. If someone does the sums across the whole supply chain, the balance of input and output VAT payments to HMRC will be the same anyway.

I believe this has been driven by the big financial clients who cannot be VAT registered (although the small holding companies who process such costs can,...) and agencies have been brainwashed by them.

But it is seriously not worth bothering about. Any variation in your invoice value will only be in the VAT element, and you recover all of yours anyway. If the umbrella is making money on it (and they aren't...) that would be evasion - but that is not your problem.

[Acme Thunderer]

Just because the Agency is doing things wrong doesn't mean that Paystream are doing things wrong. VAT charged on top of VAT is exactly what should happen on a hotel bill if you follow HMRC rules exactly.

If an agency is based in the UK then VAT should be charged on top of expenses unless it's a disbursement - see VAT: costs or disbursements passed to customers - GOV.UK (www.gov.uk) for the details.

As for Glencky 's point - the go to umbrella here is always going to be Clarity Umbrella because we trust them...

I don't think I have every had a client that accepts VAT being charged on VAT for expenses. The expenses are charged back net of VAT at invoice line item level. They then have VAT added to them. Anything else allows the umbrella company to make a profit on the VAT.