As an umbrella company employee, you may from time to time incur business expenses that can be claimed to reduce the amount of tax you pay. Your umbrella company will not usually be aware of these expenses unless you claim them, so it’s important to understand what you can claim. In this article we’ll look at the types of expenses you might incur as an umbrella company employee, and explain how each is treated.
Reimbursable expenses
Reimbursable business expenses can be paid to you without deductions for Income Tax or National Insurance. For example, if your total employment income is £1,000 and you have legitimately claimed £400 expenses, £600 will be paid as taxable income and £400 as expenses, which are not taxed.
This process is only allowed for certain types of expenses. For most umbrella company employees, they’re limited to:
Mileage costs for one-off or non-commute journeys
Where you have a regular workplace but you’re sent by the same client to work temporarily at a different location, or if you travel during the course of your work, you may be able to claim for mileage. This will be a standard rate set by HMRC, intended to cover all the costs of using your own vehicle for work. Where a journey is classed as “normal commuting” you are not allowed to claim for it.
Relocations costs
These are expenses incurred when you move a “reasonable distance” in order to begin employment, and we see them most often with contractors who have moved to the UK from overseas. They include the cost of travel from your existing place of residence, temporary accommodation, the immigration surcharge if this is applicable and certain other costs.
Work related training
You can claim for the cost of training to improve or maintain skills required for your current role, including travel costs if you need to physically attend a training course. In order to qualify, the training must be required for your current role which means you usually won’t be able to claim if you’re learning new skills.
If you’re not working under Supervision, Direction or Control (SDC)
If your end client has no right to supervise, direct or control your work, each of your workplaces can be treated as a temporary workplace. This means travel to work does not class as “normal commuting” and you can claim travel costs for those journeys.
Your umbrella company should have a robust process for determining whether your assignment falls under the SDC rules. This will include examination of your contract, and asking questions about the day-to-day reality of your assignment.
Claiming other business expenses
You may incur legitimate business expenses that don’t fit into the above categories, and therefore cannot be reimbursed in the way described above. In this case you’ll need to claim directly from HMRC at the end of the tax year using a P87 form, or if you’re registered for Self-Assessment you can include them on your tax return.
Your umbrella may have an internal process for recording these expenses, to help you to make a claim at the appropriate time, but they usually won’t be able to complete the claim for you.
Examples of items that fall into this category:
Uniforms and work clothing
Tools
Professional fees/ subscriptions
Business telephone calls
Computer hardware/ software
Working from home allowance
Chargeable expenses
These are expenses that your agency or client have agreed to pay, and your umbrella company will therefore receive extra money, on top of the contract rate, to cover these expenses. Your umbrella may be able to pay this additional money to you without deductions for tax and national insurance, but only if they qualify as “legitimate” expenses.
You will usually need to complete an expense claim and provide evidence before this type of expense can be paid tax free.
If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com