So can I claim contractor expenses when working with an umbrella company? The answer is – maybe.
The people who decide whether or not a cost can be claimed as an expense are HMRC – not your umbrella company, whatever they may tell you. Some companies advertise a ‘special dispensation’ and talk about an ‘HMRC approved expenses policy’ but this is basically a marketing tool to think that you will get something special from them – you won’t. A dispensation is a notice issued by an HMRC inspector which stops the umbrella company having to report loads of expenses on a form at the end of the tax year; and HMRC don’t ‘approve’ anything!
Probably the most important thing to remember in all this is, contrary to what you may hear, you can only claim something as an expense if you have actually paid out for something. Sounds simple doesn’t it but you would be amazed of the claims found on the internet e.g. “Claim up to “£24 a day for food, tax free, without receipts”. £120 per week, on food, whilst you are out at work, tax free – does that sound like something the tax man would allow?? Exactly!
For a cost to be allowed as an expense you have to be able to prove that it was incurred wholly and exclusively because of the assignment that you are working on. For instance, you might buy a new suit to create a good impression at your new workplace but this would not be allowed as an expense because you could wear that suit anywhere (HMRC refer to this as ‘duality of purpose’).
All umbrella companies should employ you under an over-arching contract of employment which ensures continuity of employment whilst you are working on a series of assignments. Your workplace for each of these assignments will be considered temporary and therefore you would be entitled to claim travel, subsistence and accommodation expenses. However, if you only intend to work on a single assignment whilst employed by an umbrella company i.e. work in one location for one company and then leave their employment, this will be considered a permanent workplace and the expenses won’t be allowable.
Most umbrella companies will have calculators on their website and they will require an entry for the contract value and also for expenses – beware as some of them put in a value for expenses without you being aware. It will make it seem as though they can offer something that other umbrella companies can’t do but all it will actually achieve is to make the opening of your first payslip very disappointing.
LEGISLATION UPDATE: Please note Legislation changes may restrict contractors claiming Travel & Subsistence expenses unless they can prove that they are not under the Supervision, Direction and Control (or the right thereof) of the end client.
Find out more here…