CSA assessment of Umbrella expenses

[eek]

Not for his kids.....

Considering he's probably spent the money I doubt any money will be heading towards them. Especially considering its the CSA hassling for the money....

[moggy]

I presume you are talking about Mal's comment. It's all about permanent and temporary work places. You cannot claim expenses at a permanent work place, only if it is temp (i.e. working off site). By only working for one client (regardless of number of extensions) that client is your permanent workplace. Travel and food therefore is no a business expense, it's commuting to your place of work so not claimable.

Here are some links explaining..

Temporary Workplace Definition

Contractors confused about umbrella companies :: Contractor UK

and so on....

This is all about intent though isn't it?, if they intend to work on more than one client then they can claim travel and so on, until they know they will not be working or wishing to work elsewhere through their brolly.

I am sure Lisa has explained it a few times.. perhaps you can do a search?

[northernladuk]

This is all about intent though isn't it?, if they intend to work on more than one client then they can claim travel and so on, until they know they will not be working or wishing to work elsewhere through their brolly.

I am sure Lisa has explained it a few times.. perhaps you can do a search?

Indeed... but if you didn't then you you pay it back. Saying sorry you intended to but didn't doesn't work. Yes claim it if you intended to stay for more than one assignment but if you don't then go back to the start and fix it to match the situation...

And to be fair I don't see any intent to do more than one assignment from the OP at all. I see him getting an opportunity and using a brolly to see this one assignment through.

[eek]

OK, excuse my ignorance, but why is being reimbursed legitimate business expenses through an umbrella any different to being reimbursed as a perm employee?, I thought that was the whole point of using an umbrella. And why should I declare them for Income Tax

Expenses were all incurred, the issue is I used the HMRC guidelines for claiming without submitting receipts for meals etc (all within the umbrellas rules & procedures)

(actually it was 2 back to back contracts, 6 months total)

I’m really trying to find out if this is a real ‘Law’ or just another made up rule the CSA have come up with because I haven’t succumbed to their demands

Having looked at the answers above I'll also chip in.

As a permie you would not be paid expenses to go to your day to day office, nor would you be allowed expenses for lunch or staying overnight near the office.

As such you can't do that if you work via an umbrella for a single contract, as the office you are working in is your permanent office to the umbrella and your expenses aren't really valid as you are going to and from your permanent office. However they will treat your expenses as expenses because they hope that you will get a second contract through them.

Now if you work via an umbrella for multiple contracts with different clients and different offices neither office would be a permanent one and your expenses would be allowable. Unfortunately unless you do that your expenses are not allowable and hence need to be treated as taxable income on which tax hasn't be paid.

Yes its complex, yes it seems unfair but that is life...

[Wanderer]

Did you claim for expenses which were not incurred?

What can happen is that a worker incurs an expense of (say) £1 while on allowable business travel but the umbrella has a dispensation to pay a £25 for that expense so the worker can be paid £25. Despite a concerted effort to convince people otherwise (perhaps by umbrella companies with "dispensation envy"), this is actually perfectly legal. If it were not so then HMRC would come down on the offending employers like a ton of bricks and remove their dispensation because they were abusing them.

Also note that despite the scaremongering of Umbrellas trying to keep their employees on the straight and narrow, there is no reason for HMRC to come after them personally - their enforcement point is to go after the employer (umbrella) rather than the thousands of individual employees. Also, the umbrella companies argue that they can't be reasonably expected to keep thousands of receipts (hence the dispensation) so they do not require that employees actually produce receipts, but they do require that employees obtain receipts so they can audit a random selection of employees from time to time as required by HMRC.

Of course, if an Umbrella finds that an employee isn't keeping receipts are they going to turn them over to HMRC? NO! Of course they aren't because that will draw attention to the fact that their dispensation is being abused and they don't want that. In any case, HMRC aren't bothered about single employees, they would investigate the umbrella...

So as well as paying the CSA, you need to make sure that they are on your tax return to pay income tax on the £12k. Nothing to do with child support law, just employment law.

Nope, this is business travel and comes under the same rules as the 24 month rule. So long as the intention and expectation is that the worker will take multiple engagements with the Umbrella and won't work at the same site for more than 24 months, it is perfectly legal to claim business travel and subsistence. To put it another way, how many contractors who hit the 24 month rule retrospectively invalidate all the expenses claims they made over the past 2 years? None.

I know this whole travel and subsistence thing feels all counter intuitive and morally wrong but it's not a loophole, it is the way the law was written - there is a explicit allowance for business travel and subsistence while at a temporary workplace in ITEPA section 339.

Here are some links explaining..

Temporary Workplace Definition

And that link says "Having an overarching employment contract means you anticipate working on multiple assignments when working via an umbrella company." (my emphasis). This is exactly what HMRC say - you must stop claiming when the expectation changes. The reality is that this is so wooly that they could never disprove a claim that the worker fully expected to work on multiple assignments but it just didn't turn out that way unless the worker is stupid enough to blurt out that they never expected to work anything other than a single assignment.

As an aside, just because the umbrella says that you can claim £25 a day for meals that didn't happen, doesn't mean that HMRC will take the same line. This has been done to death on here before. If you incurred £25 a day for meals, and have the receipts to prove it, and the expense is claimable (see above), then great; if not then you are in trouble.

True, you can't claim "for meals that didn't happen" that is exactly right but that is a subtle point and much of what's written on the subject makes a concerted effort to skirt around a particular scenario here.

If an employer (eg, umbrella) has a dispensation to pay £25 AND an employee (who qualifies for travel and subsistence payments) incurs a cost (however small) then the employer can pay them the full £25 tax free.

Now the cost the employee must incur is not defined so it could be that they brought a packet of crisps and a sandwich for £1, it doesn't matter how much or little they spent so long as they can prove it to them employer. Their employer can still pay the full £25 allowance and this is where umbrella operators get "dispensation envy". If Umbrella A has a dispensation to pay £5 for lunch and Umbrella B has a dispensation to pay £25 for lunch then a worker with Umbrella B who spends £5 on lunch can claim £5 with Umbrella A or £25 with Umbrella B, so like it or not there is a higher net pay with Umbrella B....



Now let's be quite clear that there are a few things I didn't say in what I wrote above.

I didn't say people can claim if NO expense was incurred. What I said was that they can claim a flat rate allowed by the dispensation if they incurred SOME expense, however small the expense may be is not relevant.

I didn't say that people don't need to keep receipts. What I did say is that the employer doesn't need to see those receipts except for a random sample to comply with HMRC's dispensation rules.

[northernladuk]

Nope, this is business travel and comes under the same rules as the 24 month rule. So long as the intention and expectation is that the worker will take multiple engagements with the Umbrella and won't work at the same site for more than 24 months, it is perfectly legal to claim business travel and subsistence. To put it another way, how many contractors who hit the 24 month rule retrospectively invalidate all the expenses claims they made over the past 2 years? None.

But this is where you have to be very pragmatic. The OP has never mentioned or indicated intention or expectation to do more than one. In fact it reads he only took this one gig and expected to do so. He can't just turn around and because he has found out he can't claim now has convinced himself he intended to do more.

I think everyone is agreed on the intention rule but the advice to this OP based on his evidence is you can't claim. Up to the OP to do whatever he sees fit based on the risks of getting found out. If he does get found out he is going to have a very hard time proving intention with just one gig under his belt and nothing else. If he switched to LTD or different brolly then maybe. One gig then back to JSA is going to be nigh on impossible to defend.

[Wanderer]

But this is where you have to be very pragmatic. The OP has never mentioned or indicated intention or expectation to do more than one. In fact it reads he only took this one gig and expected to do so.

Can you quote the bit where the OP says he only expected to do one gig with the umbrella?

My reading of it was he took a 2 month contract which turned into 6 months. A tax payer could argue that he was clearly willing and able to take extensions to the engagement and this shows a clear intention to work multiple engagements through the umbrella should the opportunity arise even though the expectation didn't match the eventuality.


Back to the original question though which was what income should an umbrella worker be assessed on for the purposes of the CSA. This is a tricky one not least because the OP was probably receiving more in expenses payments than he was actually incurring and that these expense payments were probably quite substantial in comparison to the net pay (though there is nothing illegal in this if it was via an Umbrella dispensation as I pointed out above). I would be inclined to argue to the CSA that the income was simply that which was stated on the P45/P60 and the "expenses" paid by the umbrella were legitimate business expenses and therefore irrelevant.

No doubt the CSA have handled other cases like this so they will know a lot better than me though so it might be one for the Citizens Advice Bureau, good luck with resolving this.

[ASB]

Wanderer, I am not sure the situation is as you describe.

If there is an agreed flat rate system in place (and hmrc became more prepared to agree these a few years ago) then any expenditure allows the flat rate to be charged againdt tax. This does not prevent an individual claiming on an actual expenditure basis. As it happens I was using flat rates 25 years ago internationally based on the then concession of published official rates. It was highly lucrative for staying on a low rent cheapie basis.

However in terms of a dispensation I do not think it grants an automatic right to effectively claim that amount without the expenditure.

The questio I think is "is your dispensation agreed for flat rate expenses".

[northernladuk]

Can you quote the bit where the OP says he only expected to do one gig with the umbrella?

Were does he say he expects to carry on?

At the end of the day it's up to the OP to decide and if he does just one gig then packs it in to get his house in order ready for an investigation in case it happens.

[LisaContractorUmbrella]

Just to chip in here - there is a difference between the expenses that are listed on a dispensation and scale rate subsistence allowances. What is listed on a dispensation are those expenses which the umbrella company does not have to report on a P11D at the end of the financial year - which is a massive saving on paperwork for the umbrella company. The contractor is not entitled to claim all those expenses just because they are listed on a dispensation - they would have to legitimately incur the cost.

Scale rates are slightly different - these were set up originally by HMRC themselves to save on paperwork - all their little inspectors kept coming back to the office with receipts for a few quid for coffees and sandwiches when they had been out and about which caused a lot of work for the accountants. So, HMRC said that the inspectors could have £4.95 per day as a flat rate allowance for lunch provided that a cost had actually been incurred - to claim it when no cost had been incurred was a disciplinary offence. Scale rates were extended to other employers including umbrella companies but there are still rules to be followed and IMHO there are few circumstances were a contractor could claim £25 per day for subsistence:

The benchmark scale rates that apply from 6 April 2009 are as follows:


Description

Amount (up to)

Breakfast rate

£5

One meal (5 hour) rate

£5

Two meal (10 hour) rate

£10

Late evening meal rate

£15


Breakfast rate - The rate may be paid where an employee leaves home earlier than usual and before 6.00 am and incurs a cost on breakfast taken away from his home after the qualifying journey has started. If an employee usually leaves before 6.00 am the breakfast rate does not apply.

Late evening meal rate - The rate may be paid where the employee has to work later than usual, finishes work after 8.00 pm having worked his normal day and has to buy a meal before the qualifying journey ends which he would usually have at home.

The breakfast and late evening meal rates are for use in exceptional circumstances only and are not intended for employees with regular early or late work patterns (see examples at EIM05232).

One meal (5 hour) rate - The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 5 hours and has incurred the cost of a meal.

Two meal (10 hour) rate - The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 10 hours and has incurred the cost of a meal or meals.

Benchmark scale rate payments must be limited to three meal rates on one day or 24 hour period. A meal is defined as a combination of food and drink and would take a normal dictionary meaning. Where employees are required to start early or finish late on a regular basis, the over 5 hour and 10 hour rate, whichever is applicable, can be paid provided that all the other qualifying rules are satisfied.

HTH