Contractors’ Questions: Will an umbrella let me claim the same expenses?
Contractor’s Question: For a few complicated reasons, I’m thinking of making the jump from a limited company to an umbrella company.
I know that means I won’t be able to keep as much of my earnings but what about expenses? Does the scale or scope of expenses still vary depending on the contents of the dispensation that an individual umbrella company has with HM Revenue & Customs? What I want to know is what expenses will I NOT be able to claim that, as a limited company, I’ve so far been allowed to claim?
Expert’s Answer: All expenses, whether through your limited company or an umbrella company, can only be claimed if they are incurred wholly and exclusively for business use.
However for employees of an umbrella company the expense must be “incurred wholly, exclusively and necessarily in performing their duties". In both cases though, you must always keep receipts for all expenses claimed, although through the dispensation which some umbrella companies have, you might not have to submit the receipts.
To clarify, a dispensation is a notice from HMRC that removes the requirement to report certain expenses (such as travel, telephones, business entertaining and subscriptions) and benefits at the end of the tax year on forms P11D or P9D, or pay National Insurance contributions on these items.
It’s a popular misconception that you may only claim expenses from an umbrella company if the type and value mentioned is detailed in the dispensation; this is incorrect. The dispensation only reduces the reporting requirement, while the receipts must still be retained by the employee for inspection if required for at least six years. Other expenses that pass the wholly, exclusively and necessarily test are permitted to be claimed, but the umbrella company will need to complete a P11D for the employee.
Lastly, remember that umbrella companies can provide the ability to claim some additional travel expenses that you may not be able to claim through your limited company. You should enquire with them making them aware of your specific circumstances regarding where you are working and where you are living. The answer with expenses is rarely as simple as people would hope; the best advice is to speak with a reputable umbrella company who will advise you what is permissible to claim in each scenario.
The expert was Paul Hymers, finance director at Capital Umbrella.