Contractors working through an umbrella company can claim expenses through three ways. Business mileage, reimbursed expenses or by claiming allowable expenses through end of the year tax return. Below, we aim to spell everything out in general. But please note that the expenses policy will be subject to assessment of the individual contractor’s status.
HMRC’s new regulations state that a contractor working through an umbrella company cannot claim relief on tax and National Insurance on travel using train or bus from home to their place of work. They are only allowed to claim business mileage relief on tax and National Insurance from work to temporary place of work. To determine if the mileage expenses can be claimed the following would need to be satisfied:
- Details of the journey made
- Why the journey had to be made
- What they were doing
- Who they were doing it for
Claiming the business mileage will only be allowed if the contractor is NOT caught by SDC (Supervision, Direction and Control).
What is the meaning of SDC?
Supervision is referring to someone overseeing workers to ensure the job is being done properly or to a specific standard. The process of a person helping the workers to develop their skills and knowledge is defined as supervision.
Direction means someone making workers carry out their work in a certain way by providing instructions, guidance or advice.
Control applies to someone dictating what workers do in the context of their job. This includes someone having the power to move the worker from job to another.
If the contractor does not fall under SDC, then he or she will be able to claim mileage deduction relief.
If a contractor is a multi-site worker, they will also be able to claim business mileage relief on income tax and National Insurance, even if he or she is caught by SDC.
A good example of a multi-site worker is a care worker who lives in Enfield town and works for Care Agency Ltd in Harlow. The care worker intends to visit a patient’s house in Bishop’s Stortford and then another patient’s house in Waltham Abbey later in the day.
The care worker can claim relief on tax and National Insurance for mileage on the journey from Care Agency Ltd in Harlow to the patient’s house in Bishop’s Stortford, and also mileage relief on the journey from Bishop’s Stortford to Waltham Abbey.
However, the care worker will not be able to claim mileage relief on the journey from home (Enfield town) to work (Care Agency Ltd in Harlow). Nor the journey from home to the first patient’s house in Bishop’s Stortford, if the worker went there directly. Neither can the care worker claim for the final journey from the last patient’s house in Waltham Abbey back home. Basically, if the journey to a workplace is from or back to home, then it is not allowed. However, if the journey from last place of work to home is not a regular commute, then mileage may be allowed.
Reimbursed year end expenses through self-assessment tax return.
If the contractor is not caught by SDC and does not fall under the 24 months’ rule, they will be classified as a temporary worker. So, apart from the mileage expense, the contractor will be able to claim allowable expenses such as travel to work and other allowable expenses which we will be able to advise to each worker in an individual basis. We’ll cover this next…
Expenses – What Can You Claim For?
A lot of contractors think the rules for expenses when working through an Umbrella company on a PAYE basis are fairly cut and dried: no travel and subsistence expenses before tax.
The above is true – HMRC considers that you would have had to travel to your place of work in any normal employment and eat anyway, whatever you are doing. But it begs the question: what expenses can you claim for?
If the nature of your work is such that you are under supervision, direction and control, then there may be few expenses allowable to be claimed during your self-assessment. But all claims for expenses have to be ‘wholly, exclusively and necessarily’ in the course of your business.
This means reimbursement for items that you paid for purely because of your work. Not a personal expense that anyone would have during a normal working day (like a coffee and cake). This narrows it down to the following:
- Travel to work temporarily at a location away from the usual workplace
Please note – this travel needs to be to a genuine temporary place of work, not a workplace where the contractee is routinely carrying out their job. If using your own transport, this is referred to as ‘Business Mileage’. Up to the first 10,000 miles of travel, drivers of cars and vans can claim 45p per mile, motorbikes 24p per mile, and bicycle riders 20p per mile. After 10,000 miles, the rate for cars and vans drops to 25p per mile, the rest stay the same. If using public transport (train, bus, coach, boat, plane) or taxi to a location away from your primary work location, then you can claim the cost of the fares – be sure to keep all tickets, etc.
- Accommodation, tolls, parking, congestion charge
Only in the course of working at a temporary location or a Business Mileage trip as outlined above. In this case, you can claim for your accommodation, highway tolls, parking and congestion charges. But again, this has to be in the course of your business. If you add an extra day that you can’t account for being part of your job (for sightseeing, etc), then this is not allowed.
- Items purchased to fulfil your work
These would be the tools of your trade, or something else you have to buy to get the job done. Hammer, memory stick, goggles, antiseptic wipes, stapler, glue gun, fuse wire, etc.
- Phone calls made in the course of work on personal devices
You will need to provide copies of the itemised bills as evidence. But if you had to make calls on your own phone for purely business purposes then you should be able to claim this back.
- Health checks, Training and professional development
Only where directly related to your work. If you had to personally pay out for it when a client or the regulations required you to have an eye test or physical check, or to take a training course, then be sure to claim it back!
Remember, all expenses must be ‘wholly, exclusively and necessarily’ in the course of your business.
In the end, you should be able to claim chargeable, allowable expenses that are beyond the usual travel and subsistence. As long as they are simply reimbursement of actual expenditure incurred, then those expenses can be paid to you net of income tax and National Insurance contributions.
So, how do you make sure your expenses claims are successful? Here are a few simple guidelines:
- Make sure that you have something in writing from the client relating to the expenditure. This could be an email or letter asking you to work in a different location, or a request to buy something that they’ll reimburse you for later.
- Make sure you keep a log of all business expenditure, and make a note of what activity it related to. Give it a number that you can also write on the receipt. It’s best to do this as soon as possible after you paid out.
- Keep all receipts, tickets, itemised bills, etc, and note the numbers you wrote in the log on them for reference.
- If you had to drive somewhere away from the usual workplace for business, keep a detailed mileage log. Note the postcodes of the places you had to drive from/to.
- Be honest. Make sure your expenses fall into the ‘wholly, exclusively and necessarily’ bracket. Don’t try to pad them out or over-claim; HMRC will be looking out.
- If in doubt, take advice – an accountant is your best resource.
Do you need an accountancy service?
Our parent company, Seniguk Consulting Ltd, is an expert accountant for contractors, self-employed workers, agencies and SMEs. We’d be happy to work with you on your accounts, and it could make sense to have all your paperwork under one roof.
Please click through to senigukconsulting.co.uk to learn more about us and get in touch for an informal chat.