Umbrella company expenses. What can I claim?
As an umbrella company employee, whether you are able to claim and be reimbursed for travel and subsistence expenses will depend on the specifics of each of your assignments, writes Damon Cochrane, chief operations officer at Orange Genie Group.
HMRC states: “Each engagement they undertake will be a separate employment for the purposes of obtaining relief for travel and subsistence expenses.”
This means each assignment is therefore your normal place of work and travel to and from that location is seen as commuting.
The Supervision, Direction or Control test
Crucially, since 2016, umbrella employment companies have had to assess each of your assignments for the presence of Supervision, Direction or Control (SDC), before being able to reimburse you for travel and subsistence expenses.
The umbrella company is obliged to make sure they are carrying out this process correctly in order not to fall foul of their own obligations to HMRC. As a result, their starting point must be that SDC is present - unless there is evidence to the contrary, not the other way round.
The assessment should usually be a combination of a questionnaire document that your umbrella company will ask you to complete and a subsequent discussion around the answers you have provided. The umbrella will also be looking at the detail in the assignment they’ve received from your recruitment agency - and may also look for confirmation from the end-client. If no SDC is present, then you should be able to be reimbursed for any travel and subsistence-related expenses to that particular location.
Please note, there are a couple of exceptions to the above where travel and subsistence expenses could still be allowable
- If you have to travel to a genuine temporary workplace during an assignment (an example would be working at your client’s normal site in one town but being asked to visit an alternative site).
- If your role is mobile and you don’t have a particular site from which you work (an example would be a field service engineer who travels from home to multiple client sites each day)
Your umbrella company will be able to explain what you may or may not be able to claim during your registration based on your specific circumstances. But remember that the assessment and therefore whether or not travel expenses are allowable is assignment-specific, and so the umbrella should go through the assessment process for each assignment you undertake while in their employment.
Also testing, is IR35
Since changes to IR35 on April 6th 2021, some end-clients may have made business decisions not to engage with limited company (Personal Service Company) contractors any longer. Others may have made IR35 status assessments of such contractors and in their opinion, found those roles to be inside IR35.
Both cases have led to many ex-PSC contractors moving towards umbrella employment for the first time.
If that’s you, remember that your chosen umbrella company should assess any assignment for the presence of SDC (or the right of SDC) on its own merits.
No automatic SDC fail on inside IR35 contractor roles
Please note, it is not necessarily the case that a prior “inside IR35” decision means an assignment will automatically fail the SDC assessment for the purposes of claiming travel and subsistence expenses.
Also positively, expenses that you incur during the course of your work as an umbrella contractor that are not related to travel and subsistence (such as professional subscriptions, or equipment you may have to buy specifically to carry out the role), are not subject to the same SDC test. But to be safe, you should still ask your umbrella company for details of what you may be able to claim and under what circumstances. The umbrella should be able to provide you with a copy of their expenses policy to help you understand whether an item is expense-able or not!
When expenses can be claimed, but not via your umbrella
As well as carrying out the assessment for SDC, in many cases umbrella companies also have to consider the Optional Remuneration Arrangements (OpRA) of 2017, and these may mean that the umbrella is unable to reimburse the expenses to you when you are paid.
In particular, any expenses that are allowable but have not been reimbursed by your umbrella employer, can instead be submitted directly to HMRC at the end of the tax year. Depending on the value of the claim (under or over £2,500), this submission will be done via a P87 form or the standard self-assessment process.
Please note contractors, in this scenario, any relief given relates only to income tax – there is no relief on Employee NICs as there would be if the umbrella company was reimbursing.
(N.B. OprA is not a consideration where agencies agree to cover the cost of expenses and pay that amount to your umbrella company in addition to the assignment rate. However, the UC will still need to apply the same rules on SDC in determining whether or not those expenses can be reimbursed without PAYE and NICs deductions.)
Broadly the same, with slight differences
Contractors are often bombarded with promotions, adverts or incentives by an umbrella company to use its services instead of another umbrella company. But the truth is all umbrella companies (as employers) should ultimately be applying the same employment and tax rules to their expenses processes. That said, there may be slight differences between umbrellas on how, what and when expenses will be reimbursed.
Again, try to ensure your chosen umbrella company will explain exactly what can be reimbursed to you – typically this is done during your onboarding with them. But then refer to the detail in the umbrella company’s employee expenses policy. To head off any nasty surprises later down the line, you should make sure you understand the details within, including the obligations that you have to complete as the employee.