**** 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
If you work through an Umbrella Company, the Umbrella Company becomes your employer and, as such, will be responsible for processing any expense claims that you may have. However, they also have a responsibility to you, to make sure that the expenses you claim are acceptable under HMR&C rules and that you will not have any additional tax liability in the future.
Unfortunately some Umbrella Companies artificially inflate your take home pay expectations through a fixed rate expense e.g. £35 per day which they will refer to as ‘subsistence’, ‘daily allowance’ or a ‘scale rate payment’?
HMR&C uses the term ‘scale rate expenses’ and this is what they say:
“Scale rate payments are only paid when the employee has incurred an allowable expense. A scale rate payment which is paid irrespective of whether the employee has incurred an allowable expense is simply a payment of earnings”
This means that, if an Umbrella Company is automatically processing £35 per day for their employees as an expense, when they actually haven’t spent that money, HMR&C will consider it to be earnings and therefore subject to tax.
Before you join an Umbrella Company you should ask them whether or not they process any daily amounts as expenses automatically and whether these amounts are subject to tax relief or not. Just 6 months of claiming £35 per day expenses for costs that you haven’t incurred could leave you with a tax bill of £1,820.00.
The only difference to your take home pay between one Umbrella Company and another is the margin that they retain and the level of service that you will receive. No Umbrella Company has been given special permission by HM R&C for their employees to claim for things that they have never paid for in the first place whatever they may claim in their advertising.
When choosing an Umbrella Company consider the following:
Does the Umbrella Company have guaranteed service levels?
Will you have your own account manager?
Does the Umbrella Company have an online portal?
Is the Umbrella Company run by accountants or salesmen?
How long has the Umbrella Company been trading?
If you have any questions about Scale Rate Payments or would like more information about ContractorUmbrella please contact us on 01206 713680 or you can email us at firstname.lastname@example.org.