Umbrella Company Expenses
With an umbrella company you will be working under a Contract of Employment and you may be entitled to claim certain expenses. However, some umbrella companies may assume an amount when giving you an estimation of your earnings in order to make their take home pay appear higher than it would be working through a different umbrella company.
The fact of the matter is that we are all at the mercy of HMRC - they determine how much you should pay in tax and they also determine what is and what is not allowable as an expense, not your umbrella company.
If you have an Umbrella Company or spoken to your friends and colleagues about Umbrella Companies you will, almost certainly, have heard the term ‘dispensation’ when the subject of expenses is raised. So, what exactly is a dispensation?
Well, HMRC’s definition is “a dispensation is a notice, issued by an Inspector, which relieves you from reporting details of expenses and benefits on forms P11D or P9D”
According to some Umbrella Companies, a dispensation is a great way for contractors to increase their take home pay without even having to pay out for any ‘expenses’ in the first place.
The first explanation only helps if you know what a P11D or P9D is; the second sounds great but is totally misleading.
So what is a dispensation?
Almost all Umbrella Companies have them because they save time and therefore money. If you don’t apply to HMRC for a dispensation, you have to record every single expense that every single contractor claims on a form which is called a P11D; as well as that every single expense has to be accompanied by a receipt.
So, can you claim whatever is on the Umbrella Company’s dispensation as an expense every day even though you haven’t spent anything?
No, unfortunately you can't. You can only claim as an expense what you have actually spent and you must have incurred the cost as a result of the work that you are doing. In order to be allowable there must also be no 'duality of purpose' which means that your purchase must only be used for the contract e.g. the cost of a new suit would not be allowable as you could wear it to go out on a Saturday night as well as wear it to work and therefore it has more than one use.
Is the dispensation the ‘HMRC approved’ expenses policy that you keep hearing about?
No. HMRC don’t approve anything – let alone expenses policies! The dispensation is just to save time.
For more information on what expenses you can or can’t claim through an Umbrella Company, please call 01206 713680 or, if you would like to ask Roger, our ex-HMR&C inspector, a question please email http://www.contractorumbrella.com/questions