Claiming back business expenses helps to reduce taxation for umbrella company employees. Of course, this applies to independent contractors too, although it’s rather more of a complex business since the burden of accounting is yours alone. Having tax experts on your side is one of the advantages of working through umbrella companies, but you still have to submit information on allowable expenses so that they can be processed.
With umbrella company expenses claims, you have to work in accordance with legislation, and since 2016, things have changed somewhat. Previously, travel and subsistence costs were allowable, but after April 2016, the government decided that umbrella company employees could no longer claim for these under certain circumstances. However, there are still many expenses that you can claim. In this article, we’ll examine the umbrella company expenses rules and how you can reduce your tax burden by claiming expenses from your umbrella company.
Supervision, Direction and Control (SDC) and How it Affects You
The main reason why the tax authority decided to cut down on allowable expenses for umbrella company workers is simple. If you’re claiming costs that you’d incur anyway if you were a regular employee, HMRC sees it as rather unfair if you claim these amounts against your tax.
To define which costs, particularly travel costs, can be claimed against tax, the principles of Supervision, Direction, and Control (SDC) are applied. If an umbrella company employee is subject to SDC, the government sees them as regular employees who cannot claim certain costs in their own right. Let’s take a closer look at supervision, direction and control.
If the company for which you are contracting supervises your work, ensuring it is done correctly, you are supervised.
If someone directs how you should go about doing your work, then you are subject to direction.
When someone else tells you what work you should do, how you do it, and can move you from task to task, then you are subject to control.
Many umbrella companies took fright when the SDC criteria were introduced, and stopped claiming expenses that would otherwise have been allowed. However, if you are working as a contractor through an umbrella company, you may not be subject to SDC at all. It depends entirely on the terms of your contract or contracts.
If the role for which you are contracted is not subject to SDC, you may be able to claim certain expenses that normal employees cannot claim. It all depends on the nature of the contract you have with the end client.
Whether your umbrella is willing to take this on board depends on which umbrella company you choose. It’s not a matter of circumventing tax law. It’s a matter of applying it correctly based on your circumstances, and Evolve CS is among the few compliant umbrella companies that is open to helping you examine SDC and whether you are legally able to claim certain expenses instead of just assuming that SDC applies without exception.
What Expenses Can I Claim Through an Umbrella Company?
Apart from accommodation and travel expenses, which you may or may not be able to claim depending on the type and term of work you’re doing under any particular contract, there are some expenses that you can claim with no questions asked. However, you may have to do this yourself at the end of the tax year.
Provided that your expenditure is directly and solely related to your work, you can claim for items like protective clothing, tools, professional fees and subscriptions, business telephone calls, and computer hardware and software. The same goes for wages and salaries if you appoint staff to help you, and if you need to undergo specialised training, that may be deductible too.
By the way, claiming expenses against tax isn’t any easier for contractors who don’t work through an umbrella company. Much of it comes down to the question of SDC, and even then, there may be exceptions.
Working Through an Umbrella Company and Claiming Expenses
Going through umbrella company allowable expenses with you should be part of your onboarding process when you join an umbrella. Because it’s a highly complex issue, your umbrella company should be willing to assess this for you on a contract-by-contract basis.
Umbrella company deductions for tax purposes should be based on your full remuneration, but when that includes chargeable expenses, for which you are reimbursed (or reimbursed expenses), you can submit proof of your expenditure. This means that the amounts paid by your clients don’t automatically become part of your taxable remuneration package.
Whenever you’re looking at claiming expenses against tax, be it through an umbrella or on your own behalf, your receipts provide the proof of expenditure you need. You should keep copies for at least 6 years, just to be on the safe side.
Generally speaking, if you can prove that you spent money over and above what a regular employee would spend in order to make a living, there’s a good chance that it can be deducted as a business expense at the end of the financial year. Once again, your umbrella company should be both willing and able to provide advice even though it may only directly deal with reimbursed expenses.
As for IR35 regulations, these don’t apply to you when working through an umbrella company, and it’s one of the reasons why people choose umbrellas in the first place.
How to Claim Costs: Umbrella Company Contractors
If you’re unsure of whether SDC applies to a contract, your umbrella company will be able to clarify this for you. Even under SDC, mobile employees who move from site to site to serve multiple clients on any given day are eligible to claim for transport costs and possibly other expenses too.
Consulting with your umbrella company is the first step, and once it has determined which expenses you may claim, it’s a simple matter of submitting your receipts through the proper channels.
Some umbrella companies simply refuse to process any kind of costs. Others may be altogether too free-and-easy, opening you to sudden, and unwelcome, tax “surprises.” Play it safe with the Evolve CS Umbrella services. We make sure that you’re fully compliant without paying more tax than you should. Contact us today, it’s the smart way to go!