Umbrella Company Expenses
On the 6th April 2016, HMRC changed the way in which umbrella companies operated, limiting the ability to process travel & subsistence umbrella company expenses for tax relief purposes. It also look at the feasibility of the contractor to see if they should be claiming the tax relief on expenses if they are deemed to be under the supervision, direction and control of the end client.
Previously umbrella companies operated in line with tax legislation that stated;
“for an expense to be deductible from your earnings the expense must be incurred wholly and exclusively in the performance of your assignment.” However the terms “wholly” and “exclusively” prevented deductions for expenditure that serves a dual purpose, a business purpose and a non-business purpose. These would have been classed as non-chargeable expenses, which were out of pocket costs that were incurred as a direct result of your assignment work.
Claiming tax relief via self-assessment
The ability to claim these expenses still exists for umbrella contractors, but they cannot be claimed at source. You will have to show HMRC that you are not under the Supervision, Direction or Control of the end client and if you are able to do this then these expenses may be put through via self-assessment at the end of the financial year by the individual.
The original rules surrounding this still remain in force, so should you require any clarification then please do not hesitate to contact us and we can talk you through this.
Supervision, Direction & Control
So the changes that came into force in April 2016 mean that HMRC now assume that if you provide your services through an employment intermediary then you are subject to supervision, direction or control, (SDC), or the right of SDC by the end client.
Each engagement is now to be treated as a separate employment and each workplace regarded as a “permanent” workplace, so travel between your home and the workplace is regarded as ordinary commuting and any travel costs do not attract tax relief.
For more information on the legislation please go to https://www.gov.uk/government/publications/employment-intermediaries-travel-expense-guidance/travel-and-subsistence-expenses-for-workers-engaged-through-employment-intermediaries-from-6-april-2016.
The new legislation does not prohibit the ability to claim for chargeable expenses. These are expenses that your agency or client has agreed to reimburse to you. Chargeable expenses will be invoiced added to your invoice value by us direct to your agency / end client. You therefore receive the full value of the expense back provided that the expense is allowable for tax purposes. Please note if your agency / end client has agreed a fixed figure for expenses, then we will ask for receipts in order to ascertain the actual costs incurred on the assignment. If there is an excess paid that has not been expensed, then we will look to tax this figure when we process payment to you.