Here is Company Bug’s overview of the business expenses can you claim back if you are working via an umbrella company scheme, including a look at what expenses dispensations are.
Umbrella company expenses – before you start
When examining what types of business expenses you can reclaim from your PAYE umbrella scheme, it is worth bearing in mind three crucial points:
1. You can only claim back expenses that have been wholly and exclusively incurred in carrying out your contracting duties
2. Your umbrella scheme may have a ‘special expenses dispensation’ from HMRC (see below). These are put in place purely to simplify administration for payroll departments, and do not benefit scheme members financially.
3. The only way umbrella companies can compete financially with each other is on the fees they charge.
What expenses can you claim back?
There are two types of expenses: Chargeable expenses are those that your client or agency have agreed to reimburse you.
Non-chargeable ones are those you have incurred during the course of your contract duties and have left you out of pocket. These should be reclaimed from your umbrella company using their standard reimbursement procedures.
Some of the most commonly reclaimed non-chargeable contractor expenses include:
- Travel Costs – to your temporary workplace only. Read our guide to the 24 month rule which governs the definition of ‘temporary’. This includes relevant travel on all modes of transports, mileage and parking costs.
- Accommodation / Subsistence – reasonable accommodation and food/drink costs can be reclaimed, if you are working away from home at a temporary workplace.
- The umbrella company fee itself.
- Training costs (If directly related to your contract work).
- Equipment (if required for your contract duties).
- Stationary and Postage (for contract-related items).
- Business telephone calls – either mobile or landline.
- Any special clothing you need for your contract work.
- Eye test costs if you are required to use a computer screen.
- Subscriptions and membership costs for professional organisations.
- The costs of contributing to an executive pension scheme.
What is a special expenses dispensation?
As part of the payroll process, umbrella companies need to keep a record of all expenses claimed by their employees during each tax year. At the end of the tax year, all expenses claimed are recorded on Form P11D for each employee.
Recording expense details for each umbrella client is a times consuming task, and with this in mind, umbrella companies may apply to HMRC for a ‘special dispensation’ which allows them to process expense without the need to record the details on P11D forms.
“A dispensation is a notice from HM Revenue & Customs (HMRC) that removes the requirement to report expenses and benefits at the end of the year on forms P11D or P9D.”
Dispensations are granted purely to relieve the workload of payroll departments.
For example, an umbrella may have a special dispensation which allows claims of up to £100 for overnight accommodation to be processed without the need for the umbrella to collate receipts.
However, this does not mean that contractors can simply claim £100 per night if they haven’t actually incurred this expense.
You can still only ever claim for business expenses that have been incurred wholly and exclusively during the course of your contract work.
For more information on dispensations, what they typically cover, and how to apply for one, visit the HMRC site.
You should always keep all receipts as you may be required to produce them further down the line.
Expenses should be returned to you free of tax, and should be reimbursed directly to your bank account.
If you have any questions about which expenses are valid, check with your umbrella scheme administrator.
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- Join PCG - Free impartial start-up advice for contractors.
- Visit Qdos Consulting for tax investigation cover and IR35 insurance.
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