Expenses using an Umbrella Company
One of the key benefits of using an umbrella company is the ability to claim legitimate expenses incurred during the performance of an assignment. The ability to claim expenses depends upon the type of the assignment and whether it’s subject to Supervision, Direction and Control (SDC).
The guidelines for common costs and expenses you can claim is published by HMRC and hence all the compliant umbrella companies will have a similar process. Below you can see the common expenses you can claim:
Only qualifying travel expenses are allowable. These are travel costs that employees are obliged to incur in performing their duties as employees. If you travel by public means the cost of the ticket can be claimed and if you travel by private vehicle you can claim mileage, cost of parking, toll and congestion charge; but fines like parking or speeding etc. are not allowed.
If your travel costs qualify as allowable, then normally the meals taken during the journey, whilst at your workplace or at your temporary accommodation is an allowable expense. This needs to be supported with receipts. HMRC has published benchmark scale rates that can be used to claim without producing actual receipts provided the conditions specified are met.
The cost of hotel accommodation for nights spent away from home on business can be claimed. The cost of maintaining a rental property is also allowable if the use of the property is necessary for business purposes and a permanent residence is being maintained elsewhere.
You can claim reasonable expenses incurred when entertaining business clients. These needs to be substantiated with receipts, the reason for entertainment and the information about the people you have entertained.
Protective Clothing, Equipment and Professional Subscriptions
The cost of the repair and replacement of protective clothing and uniforms is allowable where the employee's duties require such items to be worn. The cost of any equipment and professional subscriptions can be claimed if they are required for proper performance of the duties.
Stationery, Postage, Fax, Phone and Internet
The cost of stationery, postage, sending and receiving faxes, printing, photocopying and phone calls, etc. is an allowable business expense, if these are wholly, exclusively and necessarily incurred in the performance of the duties of employment, and if receipts or other proof is made available.
The costs related to any course or training completed can be claimed provided it’s wholly and exclusively for business. Any training that doesn’t relate to the role being performed cannot be claimed as an expense.
Do I need to keep receipts?
You are required to keep receipts of all the expenses you claim, as HMRC may ask for this as a proof to see that you have actually incurred the expense. Normally you should keep this for a period of 6 years, as HMRC investigations can go back as far as 6 years. If you are not able to prove that the cost was actually incurred HMRC can consider this as tax avoidance and you may liable to pay the tax on these expenses.
For these reasons, it’s important to work with an umbrella company that can give you proper guidance on the expenses and runs a structure that is compliant with HMRC policies.
You may be better off running as a limited company. To find out more please read Limited Company vs Umbrella Company.