By claiming all appropriate allowances and exemptions you can minimise your tax bill; however, this is not a way of avoiding tax. The rule for claiming expenses is "that an employee or office holder may deduct expenses incurred wholly, exclusively and necessarily in performing their duties".
Roger Westlake worked as an Inspector (S) at HMR&C and now works for ContractorUmbrella; he has reviewed our expenses policy and has confirmed that is complies with HMR&C guidance. Roger will be happy to answer any specific questions that you may have about what is and what is not an allowable expense.
This page is a summary of the most common expenses you can claim, however for a more detailed guide to expenses please visit our download page.
The taxman reserves the right to carry out an investigation into your tax return so you must keep all relevant paperwork for at least 5 years after the 31st January deadline of the tax year in question. We may need to see your receipts on occasion to ensure compliance but we will give you 30 days notice of our intention. Receipts should be kept for all the expenses that you claim.
It is important to remember that claiming for expenses that you have not incurred would be viewed by the Inland Revenue as tax avoidance.
Your Account Manager will be able to answer specific questions regarding allowable expenses but here are some examples of the most commonly claimed legitimate expenses:
You can claim the cost of travel to and from your temporary place of work. Mileage rates are 45p per mile for the first 10,000 miles in any fiscal year and then 25p per mile thereafter. This allowance is to cover fuel and running costs of the vehicle. If you are traveling to work as a passenger in a car you are entitled to claim 5p per mile. You can also claim for parking and congestion charges but you may not claim for parking fines or speeding fines. The cost of travel by public transport can be claimed but you must have a valid receipt. A mileage allowance can also be claimed for travel by motorcycle and bicycle at rates of 24p per mile and 20p per mile respectively.
Food, drink and accommodation
The cost of hotel or bed and breakfast accommodation can be claimed as an expense as can the reasonable cost of additional meals taken in conjunction with overnight accommodation. There are no set allowances for accommodation but the cost must be deemed to be 'reasonable'; this also applies to the cost of meals.
The cost of protective clothing that is worn to protect your everyday clothes can be claimed as an expense. Clothing required for the performance of your contract that could not reasonably worn outside of work can also be claimed. You cannot claim for ordinary clothing which would form part of an 'every day' wardrobe even if you would not be likely to wear your working clothes anywhere other than at work. You also cannot claim for the costs dry-cleaning or alterations.
According to HMR&C legislation, an expense cannot be deducted under the general rule for employees' expenses in Section 336 ITEPA 2003 unless it is incurred "in the performance of the duties of the office or employment". This means that the training course must be wholly and totally relevant to the performance of your duties under your existing contract. It is not enough for the expense to be relevant to the job, or to be incurred in connection with the duties of the job.
The Inland Revenue will permit you to claim, as an expense, the cost of fees and subscriptions paid to professional bodies or learned societies.
Claims for equipment must be supported by evidence that they are specifically required for your current contract and that the equipment is wholly necessary for you to perform the assignment. Any general pieces of equipment for your role as a contractor or ‘nice to haves’ are not permitted by HMR&C.
Pensions are big news as they represent one of the few remaining tax breaks available to contractors. You can invest part of your income into our pension scheme and we process this as a tax benefit for you. You save not only the income tax that would ordinarily be payable but due to the pension contribution, your employers and employees national insurance contributions are lower than they would have been. Through ContractorUmbrella’s pension scheme, the amount of tax relief can be as much as 54% meaning that for each £100 invested you pay from as little as £46.20 and the tax man pays the rest. For more information please visit our Pensions page.
Payroll giving is a scheme that allows you to make a flexible donation to any UK charity from your gross salary. This means you get immediate tax relief on your donation whilst contributing to a good cause. For more details please visit our Give As You Earn page.
Our final word on this rather complicated subject is that if you are not sure whether or not a cost can be claimed as an expense, please check with your Account Manager before submitting your claim. Please remember that you cannot state your expenses as gospel. Or rather, you can but if the Inland Revenue decides to investigate and you have no receipts you are in big trouble. The moral is: only claim those costs that you have actually incurred.
A more detailed guide to expenses can be downloaded from our Free Guide page.
Our Umbrella Companies: Myths and Facts page dispels the most common misconceptions about using an Umbrella Company.