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.
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Guidance surrounding expenses is extensive, contradictory and confusing! There is a danger, if the rules are not fully understood, that an umbrella company could allow a claim that HMRC would refuse. AUCAE look at some of the umbrella company expense myths that are used to entice contractors.
The following expense guidance have all been taken from umbrella company expenses policies. It allows us to uncover some of the umbrella expense myths that are used to entice contractors.
There is a £60 per year allowance for the cost of laundry (EIM32485). However, it refers only to the cost of cleaning uniforms and protective specialist clothing. It does not refer to the cleaning costs of ordinary clothes.
Breakfast and Dinner
The costs for these meals can only be claimed if… An employee’s travel to and from work is undertaken at times outside of their normal working hours. E.g. if an employee normally works 9 to 5 but has to attend a meeting which means them leaving home before 6.00am. It would not be unreasonable for them to claim for the cost of breakfast. The cost of dinner is allowable provided that the employee is working outside normal working hours and finishing work after 8.00pm.
Journals and Magazines
For a cost to be allowable as an expense it has to be incurred wholly and exclusively. It must also necessary in the course of the employees’ duties. Although an industry journal or magazine may provide interesting insights into the employee’s area of work, the cost cannot be justified. Reading the publication is not necessary for them to fulfil their duties.
Mobile Phone Purchase
Unless you are purchasing a mobile phone in a business name, you cannot claim the cost of the phone or the tariff. The only claim that can be made as the employee of an umbrella company is for the cost of business calls and these must be identifiable and highlighted on a mobile phone bill. Pay as you go phones do not give the user a call breakdown and therefore all associated costs would be disallowed.
An employee’s relocation costs may be wholly or partially reimbursed by an employer and the employee will receive tax relief on up to £8,000. However, this can only apply to those who were already an employee but working in another location. Or to those who have been specifically recruited by the employer to fulfil a role; the employee must also be moving ‘lock, stock and barrel’ to the new location.
Therefore, in order for an umbrella company to allow the expense they must be able to prove that the employee was working for them before the relocation. Or they must have evidence that they had recruited the employee for a specific assignment.
They must also consider whether or not the employee will be moving to the UK just for the duration of the assignment. Or whether they will be travelling home during the assignment to visit family. In either instance there would be no entitlement to tax relief. This logic will apply to all the associated costs of relocation including travel and shipping and staying in temporary accommodation.
In order for an expense to be allowable under the general rule for employees’ expenses in Section 336 ITEPA it has to have been incurred ‘in the performance of the duties of the office of employment’. Therefore training costs which may prepare an individual for the requirements of a new assignment or will develop their skills for potential future assignments will not be allowable as an expense. Section 250 of ITEPA further state that no tax relief can be given to employees for the costs of self-financed training. So unless an umbrella company were to arrange and pay for the training cost, it is likely that HMRC would conclude that no tax relied was allowable.
Staying with Friends or Family Overnight
From 6th April 2009 scale rate payments for expenses incurred while staying with a friends or relative have been disallowed. The employee would, however, be entitled to claim the cost of an evening meal if supported by receipts.
Driving Licence Renewal
It would be impossible for this to meet the ‘wholly, necessarily and exclusively’ requirement. For an employee of an umbrella company, the renewal of a standard driving licence would not be allowable as an expense.
Purchase of Assets
Expenses that are allowable for tax relief to an employee differ from those which are classed as capital expenditure for a business. An employee purchasing capital items such as laptops or computer equipment is not entitled to VAT or tax relief. These reliefs would apply only to the umbrella company if they could prove purchase of the asset which they then chose to loan to the employee.
In conclusion, when looking for an umbrella company make sure that you review their expense policy. If they are using any umbrella expense myths to convince you to work with them, then maybe rethink things!