Guide to Claiming Expenses

**** Expenses and Umbrella Companies Post 6th April 2016: Please note as of 6th April 2016, no "compliant" umbrella company will be able to process non-chargeable expenses for tax relief purposes due to a change in Legislation included within the Finance Act 2016. Click here to find out more... ****

ARCHIVED PAGE AS OF 6TH APRIL 2016


Claiming Expenses through an Umbrella Company

If you are working as a contractor or freelancer, expenses can be a complicated matter and as HMRC are now clamping down on tax avoidance, it is leaving many contractors with concerns about investigations over unpaid taxes.

Working through an umbrella company can help to make this minefield a little easier.  As a compliant business, they are required to monitor expenses and only process legitimate claims, helping to reduce the risk of investigation and potential prosecution of the contractor by HMRC.

So lets have a look at what expenses you can claim as a freelancer or contractor?
There are two types of expenses – chargeable and non-chargeable. Chargeable expenses are any costs that your agency or client has agreed to reimburse to you. These will usually be invoiced through the umbrella company and may well require an expense form, signed by the client, to support the claim.

Non-chargeable expenses are the out of pocket costs that you have incurred as a direct result of your assignment work. These costs will need to be shown in the Expenses section of your online timesheet so that the umbrella company can process them as a tax benefit when you are paid.

Any non-chargeable expenses are processed as a tax benefit and help reduce your tax liability. Your chargeable expenses are added to your invoice value and are reimbursed by your agency or client. You therefore receive the full value of the expense back provided that the expense is allowable for tax purposes.

It is also incredibly important that you retain receipts for all the expenses that you claim. HMRC select cases for detailed investigation and if your case were to be selected they would want to see evidence that you have incurred the expenses that you have claimed.

If you are investigated and you do not have receipts to support your claims, you will find yourself in a lot of trouble. You would be made to pay back any underpaid tax, a penalty of similar value and interest for the time you have held onto the additional funds. Worst-case scenario - you could be prosecuted for tax evasion so it really isn’t worth claiming in respect of expenditure for which you don’t have a receipt!

So when can I claim expenses?
As an employee of an Umbrella Company you may be entitled to claim assignment related contractor expenses, if you engage in a number of assignments, based at different workplaces, during a single period of employment.

If you know you will only work on a single assignment during your employment your workplace automatically meets HMRC’s definition of a permanent workplace and therefore travel and accommodation expense claims are not permitted.

There is however a 24-month rule when it comes to expenses. You are allowed to claim expenses, providing your workplace meets HMRC’s definition of a temporary workplace where your attendance lasts no longer than 24 months. At the point you know that your assignment at that workplace will last beyond 24 months you must stop claiming travel and accommodation expenses.

After 24 months, if you spend 40% or more of your time at the same workplace, travel between home and that workplace and/or accommodation expenses are no longer allowable. If the agency or client is reimbursing your costs (chargeable expenses), the income becomes taxable along with the rest of your earnings.

If you continue working for the same client but change workplace after 24 months, the new workplace must be geographically different to the previous workplace or there must be a significant change to your daily commute to be entitled to claim travel and accommodation expenses.

  • So what common expenses could you claim?
  • Travel and Subsistence
  • Secondary Accommodation Costs
  • Additional meal costs
  • Protective Clothing, Tools and Equipment
  • Professional Subscriptions
  • Insurances
  • Working from home
  • Pension Contributions
  • Childcare Vouchers
  • Charitable Donations

For more information on what you can claim, and the finer details surrounding these expenses, please click here to download Contractor Umbrella’s Contractors Guide to Expenses.

Finally……………
It is important to remember that claiming for expenses that you have not incurred would be viewed by HMRC as tax evasion, expenses are not a way to avoid tax and everything you claim must be supported by receipts.