What is an Umbrella company dispensation?

An umbrella company cannot dictate what an individual can claim as expenses – only the tax authority can do that. Some companies advertise a 'special dispensation' and imply that the expenses listed are those that you are entitled to claim, this is not the case. To claim a cost as an expense you must be able to prove that it is 'wholly and exclusively incurred in carrying out the duties of the employment'. Basically, if you haven't spent it you can't claim it, if you can't prove you spent it you can't claim it and if you can't prove that you incurred the cost because of the contract you can't claim it.

A dispensation is purely a list of expenses that your umbrella company is not compelled to record on a P11D. Normally when expenses are paid to an employee a Company is required to complete a P11D. A dispensation means this is not necessary for an umbrella company for those expenses which it covers. All umbrella companies have dispensations.

Still within the thorny subject of expenses – you must therefore obtain a receipt for any and every expense that you claim. If you claim an expense and you cannot prove that you have incurred the cost a Revenue investigation (of you as an individual) would result in you having to pay the underpaid tax; if the Revenue considered that you were trying to avoid paying tax by falsifying expense claims you could also be fined.

All umbrella companies will advertise that they are IR35 compliant simply because the legislation becomes irrelevant as you have no option but to be paid via PAYE. However, the Revenue will never 'approve' an umbrella company or their expenses policy and you should be wary of any company that makes such a claim.

Further reading: Umbrella Company guides

How to choose an umbrella company

Directory of umbrella companies

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