Claiming Expenses via an Umbrella Company - A quick guide!
As this seems to be a relatively hot topic at the moment in light of recent court cases, I thought it might be useful to give a bit of advice around claiming expenses when working via an umbrella company…
2016 saw the removal of Travel & Subsistence Expenses from umbrella companies, which should have made things a little more straight forward, but the waters have been more and more muddied since then.
Claiming tax relief on non-rechargeable expenses (those the end client is not agreeing to reimburse) when working via an umbrella company would hinge on the Supervision, Direction and Control element of the assignment, not just what it says in the contract, but what happens in practise too. HMRC now assume that if you provide your services through an employment intermediary then you are subject to supervision, direction or control, (SDC), or the right of SDC by the end client, unless proven otherwise. Each engagement would be treated as a separate employment and each workplace regarded as a “permanent” workplace, so travel between home and the workplace would be regarded as ordinary commuting and any travel costs would not attract tax relief.
If SDC didn’t apply (completely subjective as there is no legal definition of this), then the contractor may be able to claim relief on travel and subsistence expenses to a “temporary” workplace, usually confirmed by the contractual arrangements, multiple assignments and the evidence of an overarching contract of employment.
That claim, in theory, should be done via self-assessment at the end of the tax year, so proper records would need to be kept evidencing all the above, from SDC to contractual and practise arrangements. We have seen companies working around this by putting in place an SDC test, or by allocating estimated expenses tax free, but in my opinion this all seems risky, and HMRC seem to agree.
Then, we move onto the rechargeable expenses, again another minefield and one that the legislation does not prohibit contractors from claiming.
We have started to see more umbrella companies airing on the side of caution and taxing all expenses, then either trying to reimburse the tax once checks have been carried out or, requesting the contractor claims the tax relief back via self-assessment, so please make sure you speak with the umbrella if you are likely to be claiming so you know exactly where you stand.
Expenses are a complex matter, but in order to ascertain if an expense needs to be taxed the umbrella company must do some very thorough checks, and this is by no means a fully comprehensive list of the things that need to be covered, just a few things that you the contractor should be aware of…
I will add to this when I think if any other things you may need to consider, but hope this is useful.
2016 saw the removal of Travel & Subsistence Expenses from umbrella companies, which should have made things a little more straight forward, but the waters have been more and more muddied since then.
Claiming tax relief on non-rechargeable expenses (those the end client is not agreeing to reimburse) when working via an umbrella company would hinge on the Supervision, Direction and Control element of the assignment, not just what it says in the contract, but what happens in practise too. HMRC now assume that if you provide your services through an employment intermediary then you are subject to supervision, direction or control, (SDC), or the right of SDC by the end client, unless proven otherwise. Each engagement would be treated as a separate employment and each workplace regarded as a “permanent” workplace, so travel between home and the workplace would be regarded as ordinary commuting and any travel costs would not attract tax relief.
If SDC didn’t apply (completely subjective as there is no legal definition of this), then the contractor may be able to claim relief on travel and subsistence expenses to a “temporary” workplace, usually confirmed by the contractual arrangements, multiple assignments and the evidence of an overarching contract of employment.
That claim, in theory, should be done via self-assessment at the end of the tax year, so proper records would need to be kept evidencing all the above, from SDC to contractual and practise arrangements. We have seen companies working around this by putting in place an SDC test, or by allocating estimated expenses tax free, but in my opinion this all seems risky, and HMRC seem to agree.
Then, we move onto the rechargeable expenses, again another minefield and one that the legislation does not prohibit contractors from claiming.
We have started to see more umbrella companies airing on the side of caution and taxing all expenses, then either trying to reimburse the tax once checks have been carried out or, requesting the contractor claims the tax relief back via self-assessment, so please make sure you speak with the umbrella if you are likely to be claiming so you know exactly where you stand.
Expenses are a complex matter, but in order to ascertain if an expense needs to be taxed the umbrella company must do some very thorough checks, and this is by no means a fully comprehensive list of the things that need to be covered, just a few things that you the contractor should be aware of…
- Check to see where the contractual location of work is stated under the B2B contract that the umbrella company has with the agency, if this is ambiguous then go back and ask for it to be amended, ie if the contract states UK, this could leave all expenses open to being taxed, because travelling in the UK is part of your obligations under the assignment.
- Understand that if the expense has a duality of purpose, then this would be taxed as a benefit on top of your assignment rate. Any expense must be wholly, exclusively and necessarily incurred for that assignment, so if you add WIFI to a hotel bill, be aware in reality this would be taxed as it could be used for personal use too.
- Keep your receipts! Sounds simple, but without them the expense should be taxed. Also make sure if there is VAT on the expenses, you get a valid VAT receipt (breaks down the VAT element, and provides a VAT number), again without this you may end up receiving only the net value, dependent on how the agency reimburses. On that note, something we have seen recently is booking.com receipts, this is not a valid VAT receipt as the company is based oversees, so you should seek to get the VAT receipt from the hotel itself, or again you may only receive the net figure back.
- When reviewing expense receipts, travel details should be checked by the umbrella alongside dates that the expense was incurred to ensure the relevant dates are applicable on the timesheet. Expenses cannot be claimed for days that were not worked.
- When commuting to their client’s site we must comply with HMRC’s 24 month / 2-year rules to be able to claim mileage / travel expenses. Travel expenses to a ‘temporary’ workplace can be claimed for up to 24 months. Should your contract be longer than 24 months, this is then deemed a ‘permanent’ workplace, and you would no longer be able to claim travel expenses. Should you know, the contract will last more than two years when you take it up, you should not be claiming any travel expenses for that job at all. You will need to provide start and end postcodes and reason for travel to the umbrella company too, if they are to perform the checks correctly.
I will add to this when I think if any other things you may need to consider, but hope this is useful.
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