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Umbrella Company Dispensations
Many Umbrella Companies use a ‘Dispensation’ as a key selling point when marketing an Umbrella Company solution. If you are considering using one of these companies you should be fully aware of what a Dispensation is and how it will affect you as what you are told by the umbrella company and the reality of the situation may be altogether different.What is an Umbrella Company Dispensation?
A dispensation is simply a way of reducing paperwork. Normally a company would have to complete a P11D or P9D for each employee at the end of the tax year (where the employee has claimed business expenses). Where a company has agreed a dispensation with the HM Revenue and Customs it does not have to do this for any agreed expenses. However, any expenses outside the scope of the dispensation still have to be detailed on a P11D or P9D. The dispensation also means that the employee does not have to record any business expenses on an end of year tax return.A dispensation does not allow an individual to claim business expenses where no cost has actually been incurred. Nor does it mean that simply because the company has a dispensation that no receipts should be retained. A dispensation is simply a way to reduce end of year paperwork, not a way to claim expenses that never existed. Further, the existence of a dispensation does not prevent HMRC from later changing its mind!
Should I keep hold of receipts for business expenses?
It is very important to keep hold of all receipts for business expenses. If you do not keep hold of receipts you have no way of proving what costs you have incurred, meaning you will probably receive a bill for unpaid Income Tax and National Insurance if Investigated. You should keep receipts in a safe place for at least 6 years and record somewhere what the business expense was for and why you were required to incur it. Obviously if you have attached receipts to an expense claim form and sent them to your Umbrella Company, than that company should be keeping them for you.Do Dispensations allow contractors to claim expenses which have not been incurred?
No, a dispensation will not under any circumstances allow you to claim a business expense that you have not actually incurred. If the Umbrella Company markets a headline £30 per day in claimable subsistence this does not mean that you can claim £30 in subsistence for each day that you work on site, unless you have actually incurred at least £30 of subsistence in a legitimate claim.If you operate in this way you will undoubtedly face a backdated tax bill in the future as you hold liability for any unpaid tax. If an Umbrella Company offers very generous expenses without requiring receipts you should be very careful. As the old saying goes, ‘If it sounds too good to be true, it probably is!’.
