Umbrella companies must ensure that they have rigorous umbrella expense checks procedures in place. This ensures all expense claims are genuine. It also ensures the costs they relate to have been incurred wholly and exclusively as a result of the assignment. They must also ensure that their employees are aware of the need to retain receipts for any expenditure that they submit as an expense claim.
Random Umbrella Expense Checks
It is recommended that all claims are checked. Also that a 10% random sample is analysed thoroughly and supported with copies of employees’ receipts. Mileage claims are checked most rigorously as they are the most common expense claimed by umbrella company employees. They are also the easiest to falsify.
Fuel receipts should be examined closely to ensure that the receipts are consistent with the claim. It is not uncommon for 2 receipts to be submitted for the same date or for some to be for a diesel vehicle and some for a petrol vehicle. The claims should also pass the ‘reasonableness’ test. A mileage claim for 400 miles in a single day, for example, is highly unlikely to be genuine as it would involve approximately 7 hours of travelling time. Evidence to support any claim which could potentially be fraudulent should be obtained and, if it fails to materialise the claim should be disallowed.
Receipts for accommodation should also be carefully checked as it is relatively easy to ‘create’ a receipt; a quick check with the hotel in question should allow you to verify that the claim is correct. The same applies to restaurant receipts – a £50 receipt from Pizza Hut is unlikely to pass the reasonable test!
A dispensation granted by HMRC is seen by some companies as carte blanche to allow all expense claims regardless of whether they are correct. HMRC will issue a dispensation based on information provided but it does not have an indefinite shelf life; a company can expect them to revisit within 3 to 5 years of the dispensation being issued.
At this point they will audit the company’s processes and examine the claims that have been allowed. If they find that expenses have been allowed which shouldn’t have been, the company will be liable for the underpaid tax and NI which resulted from paying them. HMRC also have the power to add fines and interest to the amount due. It should also be considered that a dispensation only covers those expenses which are included therein. Any others would need to be reported on a P11D at the end of the financial year.