Contractors' Questions: Are my umbrella's expenses a risk?
Contractor's Question: I've heard whispers that an umbrella company is becoming nervous around the expenses that myself and other contractors using the firm have come to enjoy, mainly relating to travel expenditure. In line with the fears of an unhappy HM Revenue & Customs, I have noticed that a growing number of contractors using the umbrella appear to work at only one workplace. But I understand that the mere expectation of moving to another place of work indicates that any travel expenses would probably be allowed. I also don't think I need to be too worried because there is an overarching contract in place; am I right not to be overly concerned?
Expert's Answer: There seems to be a growing tendency these days for recruitment agencies to recommend umbrella companies with the result that more and more contractors move from umbrella to umbrella, typically seeing the contractor work at one location per employment rather than remaining with the one umbrella and working at a number of locations over a period of time.
This could have an adverse effect on the admissibility of travelling expenses which is, of course, the great selling point of umbrellas.
There is a basic rule that if a person works for one employer at one location it is unlikely that the travel expense will be allowable unless there is solid evidence that a move to another location within the employment was likely but did not, in fact, take place. The onus is fairly and squarely on the individual or the umbrella to provide this evidence.
All umbrellas should have in place an overarching contract of employment which will go some way to satisfying HM Revenue & Customs regarding the expectation of a move to another workplace. However, if there is an increase in the number of umbrella employees who work at one location and then move to another umbrella to work at one location (and so on), it throws serious doubt on whether there was ever an expectation that work with that umbrella would continue beyond the first location.
When an employee first starts with an employer, whether umbrella or otherwise, it is necessary to look at the work at the first location and ask:
- At the end of my work at this location, will I be retained by my employer and sent to work at another location or can I expect to be retained by my employer and sent to work at another location?
- Or, is it reasonable for me to assume that I will be retained by my employer and sent to work at another location? If the answer to this question is 'yes,' then the workplace is likely to be temporary (subject to the other restrictions imposed by the legislation).
Although the contract of employment is an important element, HMRC will look behind the contract and what happens in practice. The fact that a contract introduces an overarching element cannot be regarded as a guarantee of success if that is not what happens in practice, and the more contractors who move from umbrella to umbrella working at one location per employment is going to throw any expense claim into serious doubt. This is an area about which HMRC are aware. But provided it is numerically a small proportion of the total, there should not be a problem. However if that proportion grows, umbrella companies would be well advised to step back and have a serious think about the possible consequences.
The expert was Bob, the retired tax inspector.
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