Umbrella Company Expenses
With an Umbrella Company you can normally look to reclaim the cost of certain business related expenses that are incurred further to a contract. Expenses may include; Travel, Subsistence, Hotel / B&B Expenses, Professional training, Postage & Stationary etc. Expenses reduce your taxable income and boost retention!
Are you a highly skilled contractor on a UK Work Visa? Do you need a Contractor Solution to deal with project billings? If so Commonwealth Contractors can help!
We work with Umbrella Companies who specialise in dealing with highly skilled expat contractors. To discuss your situation with a highly experienced advisor call Commonwealth Contractors now on 0330 390 9021 or Submit your Details and we will get right back to you!
Benefit of Claiming Umbrella Expenses
Any expenses paid by an Umbrella Company will be on a Tax & National Insurance free basis therefore net retention will increase.
If for example there is £1,000 in contract billings that is going to be paid to you and;
- You have no expenses – Income Tax & NI must be paid on the full £1,000
- You have £300 worth of expenses:
- Income Tax & NI Is paid on £700
- £300 is paid to you Tax & NI free
If your income is in the higher rate tax band you will save a combined 42% in Income Tax (40%) and National Insurance (2%).
Potentially Allowable Expense
Many Umbrella Companies allow Contractors to claim expenses including;
- Site Based Travel (i.e. bus, rail, mileage expenses etc)
- Site Based Subsistence (i.e. lunches at a client site canteen etc)
- Hotel & B&B Expense – where working at a remote worksite
- Professional Training
- Professional Manuals & Textbooks
- Business Telecoms
- Business Postage & Stationary
Umbrella Company Expenses vary from company to company.
Expense Claim Eligibility
In order to claim an expense you must declare that the expense was incurred ‘wholly, exclusively and necessarily in the performance of your duties’. Please note that you cannot claim a personal expense.
You should keep original itemised VAT receipts to prove to the HMRC that the expense was genuinely incurred. If at a PAYE Investigation the HMRC were to question the expense and decide that it was not allowable you would have to pay backdated Income Tax & National Insurance on the value of the expense.
Site Based Rules
Site Based Rules outline the basis on which a site is considered to be a temporary workplace.
To comply with Site Based Rules you must:
- Intend to undertake multiple contracts for the Umbrella Company, AND
- Not spend (or intend to spend) any more than 24 months at a single client site
So long as site based rules are complied with, valid related business expenses are allowable.
To comply with the 24 month rule you must not spend, and must not intend to spend, any more than 24 months on a single client site.
It is particularly important to ensure you comply with site based rules when agreeing contract extensions. The moment you agree a contract extension that takes you beyond 24 months at a single client site business expenses are no longer allowable.
For example, where a contractor initially agrees an 18 month contract and then agrees a 12 month extension, the contractor is only allowed to claim business expenses for the first 18 months. Eligibility for expenses is lost the moment the contractor commits to go beyond 24 months in total rather than after 24 months.
Umbrella Company Dispensations
A company can apply to the HM Revenue and Customs for a Dispensation which will allow it to reduce end of year paperwork; in particular end of year P11D and P9D expense return paperwork.
If a company knows that it will incur certain ongoing expenses it can ask the HMRC for a dispensation up to a certain level for each category of expense. In the case of Umbrella Companies it is normal to apply for a dispensation covering standard expenses such as site based travel and subsistence and set daily limits (i.e. you can spend up to £20 per day on site based subsistence).
A dispensation does not allow a Contractor 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!
Find out More
To find out more about Commonwealth Contractors call now on 0330 390 9021 or Submit your Details and we will get right back to you!