Category Archives for "Umbrella Companies"

How Umbrella Contractors Can Still Claim for Travel and Subsistence

The issue around umbrella companies and expenses has long been a contentious one between HMRC and the contracting sector and it remains so to this day, particularly when it comes to travel and subsistence. In this article we will take a brief look at the changes to travel and subsistence expenses and how it is still possible to claim them whilst working for an umbrella company.

What changes have been made to travel and subsistence expenses?

HMRC have, in their wisdom, decided to restrict the ability of certain contractors to make claims for travel and subsistence expenses that are free of NIC’s and tax. This effectively means that all that commuting – by train, bus or tube – that is part of your contracting job and covered by expenses up until now, may well start to pinch on your finances a little bit more.

Ouch! Who Do These Changes to Travel and Subsistence Expenses Affect?

These changes will be relevant to all contractors who are personally performing (or who are under obligation to perform) their contracting services for another business or person through employment intermediaries. These could include:

  • Umbrella Companies.
  • Personal Service Companies (if they are within IR35.)
  • Recruitment Agencies or Employment Agencies.

These new regulations, introduced via The Finance Bill 2016, are only applicable to contractors who are seen as being under the supervision, direction and / or control of their client. HMRC describes these contractors as being under SDC via the ‘manner’ that they are asked to do their contracting work. And that there is the rub – the contractors don’t need to actually be subject to any real supervision, direction or control. Bizarrely, they just need to be seen as being subject to supervision, direction and control. By making this change in distinction, HMRC are effectively massively widening the numbers of contractors who can get pulled into IR35.

 

Why Have They Made These Changes To Travel and Subsistence Expenses Then?

Up until the 2016 legislation umbrella contractors were given overarching contracts that enabled them to make a claim for the costs incurred with their home / work travel. This expenses relief was never offered to permanent workers employed by companies and was thus highlighted by HMRC and the Chancellor as being unfair (in both the 2014 Autumn Statement and the 2015 budget.) In that 2015 budget, the chancellor described the rule change as being for the purposes of placing contractors on a “level playing field” with their permanent working counterparts who were unable to claim such expenses.

And What Impact Will The Changes To Travel and Subsistence Expenses Have?

The biggest impact that will be seen from these changes is that there will be a significant reduction in the take home pay of affected contractors unless their clients are willing to do for them one of two things:

  • Make increases to the rates being offered for their assignments or
  • Help minimise their losses.

A decrease in contractors net rate of pay could also lead to them being less keen on travelling longer distances if they aren’t able to claim any relief on their travelling costs. For many contractors, commuting more than a short train or car ride could soon become something to be avoided.

What About Contractors At Temporary Sites?

Between the Social Security (Contributions) Regulations of 2001 and the Income Tax (Earnings and Pensions) Act of 2003, the law still says that workers can claim expenses when moving from home to a temporary workplace (provided they don’t breach the 24-month rules.) To take an example, imagine a contractor called George who works for an umbrella company and lives in Hastings. He has a contract in South London and commutes there every day. Based on the new travel and subsistence rules George will not be able to claim expenses on that daily commute from Hastings to London. However, if George was required to make a one-off journey to Birmingham for a one-off business meeting, he would be able to claim for that – because it is not his normal workplace.

What About Umbrella Company Contractors?

Umbrella company contract workers can, despite what most people think, still claim for travel and subsistence in a compliant way and without causing their umbrella companies any excess admin and paperwork issues. They can do so, as mentioned above, provided that no one has the right to supervise, direct or control them “in the manner which” they do their contracting work. And HMRC offers some guidance as to the definition of supervision, direction and control:

Supervision

Supervision is where someone oversees someone else doing their work, in order to ensure that the worker is doing the work that they are required to do and to ensure that it is being done in the correct way to the correct standard.

Direction

Direction is where someone is making someone else do their contract work in a certain way and  they do this by providing the worker with instructions, advice and guidance as to how they must do that work.

Control

Control is where someone dictates what the work is that a person does and dictates to them how they are to go about doing that work. The concept of control also includes cases where one person has the power to move a contract worker from one job onto another.

As with most things it is the wording of the legislation that is crucial. HMRC’s reference to SDC being applied ‘as to the manner’ means that contractors can be seen as being subject to supervision to a degree, as long as they aren’t being given detailed instructions as to how they do their work.

And Finally, Why Umbrella Companies Hate The New Rules …

The combination of the highly subjective SDC tests provided by HMRC and the somewhat ambiguous guidance as to supervision direction and control has led to a lot of grumbling on the part of umbrella companies in recent months. The feeling is that these new compliance burdens are starting to mean that the processing of expenses will soon no longer be worthwhile. That’s because the umbrella companies are responsible for providing proof to HMRC that their contractors are not subject to SDC rather than the other way around. On the other hand, HMRC argue that they are not prescriptive in what evidence they will consider and say each case will be viewed based on its individual arrangements. This will leave the status of a contractor as indeterminate until HMRC have given a final ruling.

How To Find The Best Umbrella Company

Thanks to the constant stream of legislation out of HMRC relating to the way contractors work there are now only two realistic options open to contractors for managing their income – working via their own limited company or working via an umbrella company. Both have their advantages. Limited company contractors who are directors of their own company have slightly more options when it comes to tax minimisation and expenses claims. They epitomise the ‘go it alone’ ethos of contracting that most people are looking for. However, they also end up facing an awful lot of paperwork and a great many complications when it comes to tax, intermediaries and IR35! Which is why more and more contractors are now turning to umbrella companies which still offer that ‘go it alone’ mentality but provide it under the cover of no paperwork and no hassles from HMRC!

Indeed, ever since legislation was introduced to crack down on most of the contractor earnings vehicles out there – such as Employee Benefit Trusts and Managed Service Companies – the numbers of contractors opting for umbrella companies has ballooned to the point where they seem to be the default choice. There are now more than 200,000 contractors working via umbrella companies and that figure is growing year on year.

But how should a contractor who is new to the sector go about choosing an umbrella company? Firstly, they should start by doing their research – asking around, looking through forums online, checking industry reviews, talking to contractor accountants and recruitment agencies. Next, they should be prepared to ignore any hype. Most umbrella companies offer the same kinds of service at the same kind of rates. If you see an umbrella company claiming to offer a load of additional services or extra reductions in tax then you should probably steer clear of that one! Under PAYE there is very little wriggle room when it comes to tax liability so they’re either exaggerating or doing something a little bit naughty! The same applies to any claims they may make about contractor expenses. In fact, the rules on expenses are very strict and getting stricter by the year. In the end, the best way to judge them will be whether they seem honourable and truthful, whether they offer good service and how they both charge their contractor fees and get contractors their money. With that in mind, the following are some suggestions as to how to choose one umbrella company over another:

Do They Charge Unusual Fees? What Kinds of Fees

You should make sure you don’t go near any umbrella companies that are charging entry fees to join them, exit fees to leave them or which come with a minimum term that you have to stay with them (and consequently penalise you if you leave early!)

How Do They Charge You For Their Service?

Most of the decent umbrella companies will charge a fixed fee for their service, so you need to avoid any companies that link their fee to your contracting rate. This can end up being very expensive as their fee will go up as you start to earn more. These sorts of umbrella companies have purposely put in place complicated fee structures to tie themselves to your contract values. But why should you end up paying more just because you start to earn more? They are not having to do any more work so they should not be getting any more money!

No Receipts, No Expenses

Don’t listen to any umbrella company that states it is ok for you to make expenses claims without any receipts. If HMRC investigated your tax return and you did not have those receipts, then any claims would be disallowed and you would be liable for the outstanding tax.

Go With Established Companies

It may seem like obvious advice but it is best to go with an umbrella company that has been around for a while. There are a lot of new companies springing up everywhere and they simply don’t have the track record yet. If they get in trouble and fold, they could take some of your money with them!

If Something Doesn’t Smell Right, Walk Away

As mentioned above, there are a lot of claims flying around on a lot of umbrella company websites. It is very difficult to tell if a company is honest or ethical just from their website and a quick chat on the phone. But as a rule of thumb, if they are promising something (be it expenses, less tax or anything else) and you find yourself wondering how they are doing that, then chances are you should walk away. Once again, all umbrella companies are operating under the same rules and regulations as set out by HM Revenue and Customs.

Do You Know If They Are Compliant?

Obviously, you need to find out if they themselves are compliant and if they have been externally audited or reviewed. This is now quite common so it is worth checking. They will naturally tell you they are compliant as they want your business. But it is worth asking them what all their marketing claims are built around and whether they have had any dealings with HMRC. And always keep in mind, if there are any problems down the line it will be you in trouble, not them!

How Is The Service?

Lastly, it’s all about the personal touch. There are, nowadays, a number of fully automated umbrella companies out there and they are definitely cheaper. But that doesn’t mean they’re better. At some point you will almost certainly want to speak to a human being, particularly if you are new to the contracting sector. Before you sign up, call them and test out their service. Try asking them a few questions like – Will I have a dedicated account manager? How big is the support team? Are there service level agreements? See if you get one competent person who can deal with your questions well and who listens to you. If not, move on to another umbrella company!

 

What should you expect from an Umbrella

An umbrella company helps you to increase your take-home pay while paying full income tax and staying under the law of UK. The umbrella solution becomes popular after the implementation of a new tax known as IR35 in 1999. Later changes in HMRC guidelines discouraged Managed Service Companies (MSC), which left contractors with only two choices i.e. an umbrella company or a limited company.

Due to the nature of limited companies, they don’t suit every contractor. Many contractors simply don’t want to get into the hassle of setting up a new company. Others don’t want to commit as a company directory but they still don’t want to go back to permanent employment. This is where umbrella companies come in. They offer a middle ground for contractors so that they can continue working without having to set up their own limited company.

Getting started with an umbrella company is easy. All you have to do is to sign a contract and your company will take care of rest of the things. But before you get started, here are some important things that you need to ask your umbrella service provider before making a contract.

Web-based platform

The very first thing you need to look for in an umbrella company is that can you access it by sitting anywhere in the world? Make sure that you can submit your timesheets online at any time, anywhere.

Payroll flexibility

How flexible is the umbrella service provider with their payroll? How long it will take to receive the payments after submitting the timesheets? Is it possible to get the payments twice a month? A reputable umbrella company will offer you to receive the payments on a monthly, weekly, or fortnightly basis so that you can select a plan according to your requirements.

Also, you have to make sure that you can ask for emergency payments in case you need your payments earlier than routine. There should be a way through you can get your payments quickly.

Insurance Cover

While making a decision about a PAYE umbrella company, you need to make sure that they offer personal liability insurance cover. The insurance cover makes your payments safe and secure in case your umbrella company goes bankrupt.

Claimable Expenses

The reason for joining an umbrella company is to increase your income by claiming true business expenses. An umbrella company allows you to claim travel expenses, equipment charges, lunch expenses, etc. You have to select a company that allows you to claim more expenses to enhance your earnings.

Fees and charges

It is important to look at service charges of the company before finalizing the deal. The top rated companies offer no signup or termination fee so that you don’t need to select a company that asks you to pay in advance. Also, there should be no charges for the period you are not working on any contract.

Another thing that you need to know is that some companies offer a variable fee structure. The cost of services you pay in this case increases when you earn more. Therefore, if your income rises, the umbrella company fee also raises. This can be a huge problem especially if you are looking to increase your take-home pay. A big chunk of your increased income will be deducted by your umbrella company as its fee.

Supplementary Fees

Some companies display low fees and charge to attract the contractors, but most of them make you pay more money through additional charges. Make sure that there are no additional charges for, reference letters, sending the invoices, issuing payslips, P60’s, etc. Make it clear that you will not pay any extra fees except the service charges. Some companies may charge you a fee for joining and leaving the company. Beware of any such fees.

Customer Support

Most of the companies offer 24/7 customer support so that you can ask for help in case of an emergency without having to restrict yourself to office hours. The customer support staff makes sure that you are receiving your payments on time and not facing any issue regarding your timesheets or payments. Also, there should be no extra charges for 24 hours customer support as it is part of their services.

What do HMRC think of Umbrella Companies

When you’re contracting, you have to make sure that you’re aware of truth and facts when it comes to umbrella companies. It is easy to lose track when selecting an umbrella company because you will be looking at many PAYE umbrella payroll companies offering expenses dispensation, IR35 compliance, and HMRC approval. HMRC umbrella companies are just fraud.

They are just using it as a marketing message. The truth is that these umbrella companies only fulfil the contracting chain. These HMRC umbrella companies do not have any special expenses dispensation and IR35 is irrelevant to umbrella companies.

Umbrella companies provide an excellent solution for short-term contracting. These companies connect contractors with clients and provide administration services to make things easy. However, they have nothing to do with IR35. Every contractor working through an umbrella company is an employee of the company. This simply means that contractors working through these companies are already within IR35 and they pay tax and NI according to that.

Are Umbrella companies HMRC compliant?

Another important thing to know about umbrella companies is that these companies advertise as HMRC compliant. In fact, HMRC doesn’t approve any service providers. However, umbrella companies will have to be fully compliant and follow laws and HMRC guidelines in order to ensure that their procedure is compliant. This doesn’t mean that contractors don’t have to worry about HMRC.

Similarly, many umbrella companies advertise that they have special dispensation granted. This is not the truth. HMRC allows dispensation to all the larger companies so that they can easily manage the day-to-day affairs without having to keep records of petty office expenses. This is just for the company and not for its employees. Contractors, being umbrella company employees, will still have to follow tax laws and submit receipts for all their expenses.

When you choose an umbrella company, you just have to make sure that you are not wasting your time on companies that market using features that are only natural for all the HMRC umbrella companies. Choose wisely and look for cost, feedback of services, and administrative efficiency.

Current Umbrella legislation

When you enter the world of contracting, you need to understand that you have learned everything about it. You have to learn about umbrella companies since they are the major concern for part-time contractors. On the other hand, if you are a full-time contractor and you’re looking to stay that way for long-term, you still need to know about umbrella companies and what you can get from them. You will also have to learn about IR35, dispensation as well as HMRC compliance.

Many umbrella companies advertise themselves as HMRC and IR35 complaint. To begin, you have to clear this confusion. Keep in mind that umbrella companies enjoy dispensation but that is just for the company expenses and not for contractors. Since most companies advertise this as one of the benefits of joining them, it is important that you know it in detail. A dispensation is usually allowed to the larger companies so that they don’t have to worry about the routine expense. However, contractors, who are working as employees of these companies, have nothing to do with dispensation. These contractors will have to show receipts of all the expense they file in the tax.

The big bad IR35

Umbrella companies also advertise that they are IR35 compliant. The fact is umbrella companies don’t have anything to do with IR35. In fact, IR35 is not a concern when you’re working through an umbrella company since you will be working as their employee and not as a contractor for tax matters. The company will automatically deduct your tax and NI contributions and will make the payments on time. On the other hand, when you are operating through your own limited company, you have to think about IR35 and try to keep your contracts out of the scope of this legislation to keep your income to the maximum and tax to the minimum.

On the other hand, umbrella companies offer a great advantage when it comes to management, administration, and payment solutions. This means that you don’t have to worry about asking clients for payments, sending them invoices, or submitting your timesheet. You can simply use an umbrella company’s online system to keep track of your work hours. The company will send your worksheet to the client and ask for payment. After it receives the payment, it will then deduct NI and tax and send the remaining over to your bank account. As an umbrella contractor, you won’t have to worry about tax or other things. Umbrella Contractor Company will take care of everything in the administrative zone for you.

When you are new in contracting in the UK, you have to learn about a few things before you can really get moving. One of the most important things to learn is to understand how it all works in the UK. You will also have to learn about related legislation, rules and tax issues. Once you know all these things, you will be able to become a better contractor.

Apart from all these things, you will also have to learn about umbrella companies. Although these companies offer a number of advantages, they also have some disadvantages especially if you have been blinded by a clever marketing pitch. For instance, you may think that working through an umbrella will mean that you can claim certain expenses without actually incurring them. This isn’t true and is just a marketing ploy. You don’t get to claim any expenses unless you can prove them through receipts.

Umbrella companies may advertise their dispensation as ‘claim expenses to increase your take-home pay’. Think about it carefully. A dispensation is for large companies, especially granted by HMRC. However, this is for the company matters and not for its employees or contractors. As an umbrella employee, you won’t have to do anything with it. You will still be providing receipts for your expenses. You won’t be able to claim any expense that doesn’t have its proof –  or said simply, you can’t claim an expense unless you have actually incurred it.

Despite the negative marketing that some umbrella companies do practice, you will have a number of benefits working through a genuine umbrella company. It will not only take care of your administrative matters but will also ensure that you don’t have to worry about payments, tax or anything else for that matter.

Finding the right umbrella may seem like a tough choice with so many options available to contractors. However, if you look at a company’s history and its business ethics along with cost and services, you will quickly find out the best umbrella company in the UK.

When you are about to start contracting in the United Kingdom, you’ve to make sure that you’re choosing the umbrella company wisely. You will have a number of options and all you will have to do is to make the right choice. However, you won’t find it easy. Just try to make sure that you are not rushing your decision.

Staying on the right side of HMRC

If you’re not sure about making the right choice, you have to make sure that you are reading all the tips below.

  • When choosing an umbrella company, you have to make sure that you’re checking its reputation. This is the most important thing to consider at this stage. Other things come only after that.
  • You will also have to make sure that you are checking the fee of the company. Although almost all the companies charge almost the same, you still need to consider the fee since some companies will be charging hidden charges. Inquire the company about these hidden charges before you join the company.
  • Check out the testimonials of the company. Most of the times, you will have a good idea about a company’s performance when you see reviews from other contractors. It will be easy to decide in the light of these reviews.
  • You may also want to check whether the company is offering its own portal for contractors or not. This will mean that you have your private online area for timesheets so that you don’t have to do it on paper.
  • Finally, make sure that the contractor umbrella of your choice is offering something special, something that other companies are not offering. This will give you value for your money.

Umbrella companies will always process your invoice, deduct your tax and NI,  and do the payment processing for you. Therefore, these are the standard services to look for when choosing an umbrella company in the UK.

Umbrella company vs paye

If you have made a decision that running your contracting business as a limited isn’t really for you, you may think about choosing an umbrella company for contractors. Additionally, there are some employment agencies that might process the value of your contract straight as PAYE with their very own pay-roll.

Both choices are comparable as in both you end up being a worker of the organisation, which then takes care of all needed payroll, taxation and HR jobs. Both alternatives will certainly see you tax under the pay as you earn (PAYE) system, meaning you never have to fret about completing any HMRC tax returns.

Your agency might supply you two different pay rate. These prices exist as the employment agency uplifts the umbrella pay rate to pass their employment savings on to the user.

Both options include far less documentation, and also your personal duties are a lot lower than if you chose to work as an agency PAYE worker. That claimed, there are some distinctions to be knowledgeable about, particularly the capacity to claim tax relief on what you spend when being employed by an Umbrella company based on passing the supervision, direction and control (SDC) test.

Exactly how do they take care of expenses

Neither PAYE or Umbrella has the flexible when it comes to dealing with expenses compared to using a limited company. But when you’re invoicing via an umbrella company you’re able to claim back specific expenses such as travel and subsistence. You have to pass a supervision, direction and control (SDC) test before your able to claim and your umbrella company will be able to help with this, The government has some excellent information on SDC here

Will my pay rate differ based on my choice?

When you’re offered a contract, your agency will give you the choice of whether you’d like to be paid via an umbrella or use their in-house PAYE system. In most cases, if you inform them that you’d like to use the Umbrella you will be given an increase in you contract rate. This is because the agency will not foot the employer’s national insurance bill and this saving is passed on to you.

Which has the least amount of admin?

Due to both opinions being employed based the administration is very small. You will have to submit a timesheet, and if you’re using an umbrella and are outside of SDC, you will have to keep a record of your expenses.

Limited Company VS Umbrella Company – Making an aware choice

If you are going to leave permanent employment to start contracting or freelancing, you need to look for your options. In the UK, you can set your own limited company or you can work via an umbrella payroll service. Both solutions have their positive and negative effects depending on the situation of the contractor. The advantages and disadvantage of both companies are listed below, which allows you to make a decision that what is good for you.

Umbrella Company

An Umbrella company is a firm that acts as an employer to agency contractors who work in the UK. The umbrella company provides full employment rights to contractors including sick pay, holiday pay, etc. Let’s take a brief look on the pros and cons of an umbrella company.

Pros of Umbrella Company

  • An umbrella company allows you to increase your take home pay by reducing your income tax. You can claim your business expenses, which results in maximum take home pay.
  • An umbrella company provides you more time to finish your contract by handling the admin work. You can focus on your work without any hassle of calculating tax or sending the invoices.
  • Umbrella solution is a good option for those contractors who come under IR35 tax. An umbrella company will provide employment cover and thus help contractors under IR35 make the most of their current status.

Cons of Umbrella Company

  • You will not remain as independent as running your own limited company because you are not the director of the company.
  • Many of umbrella service providers bound you to stay with them for a certain period of time.
  • The umbrella companies charge you a massive sum of money for their services, which means you have to pay more cost as compare to limited company. Also, it decreases the overall take home pay.

Limited Company

In a limited company, you will be the only owner of the company and will be full responsible of financial matters. You have to maintain the accounts by yourself or through hiring an accountant. The limited company allows you to keep full control over your money, so there will be no fear of losing money. The complete pros and cons of limited company are given below:

Pros of limited company

  • A limited company gives you full independence to make your own policies and save as much tax as you can while staying under the law of UK.
  • A limited company allows you to save more tax as compared to Umbrella Company. Since you have full control on the business policies and other affairs of a limited company, you can easily opt for tax efficiency. One such example would be setting up pension scheme and putting most money in it. Since pension account is tax-free, you will be able to save tax this way. Similarly, there are number of other legal tax saving schemes that can be implemented when operating through a limited company.
  • A limited company provides you full freedom over your financial matters and increases the income as you don’t need to pay for umbrella services.
  • There is no risk of losing your money as you are getting your payments directly. With umbrella companies, you may lose your money if the company goes into administration. You won’t be able to do anything about it.

Cons of limited company

  • Setting up a limited company requires time and resources. You will need to follow a procedure for incorporating your company since a company is a legal person. New rights will be created and you will have duties and liabilities as company director. This may not be an ideal situation for many contractors.
  • A limited company require extra time to complete the admin work, sending invoices, calculation of tax, filling the self-assessment form, etc.
  • If you come under the IR35 tax, then you can’t take any advantage of setting a limited company. In fact, you have to pay more tax as compare to Umbrella Company.
  • When working through a limited company, you may need to hire a lot of other people, especially an accountant for keeping the books. This means additional costs that clearly surpass the fee you pay to an umbrella company for similar services.

What Expenses you can Claim through an Umbrella Company

Since this page was written there have been some crucial changes. It is important to note that as of the 6th April 2016, changes in legislation (as part of the Finance Act 2016) mean that it will not be possible for a compliant umbrella company to process chargeable expenses for the purpose of tax relief.

Most people assume that only limited company contractors can claim expenses as part of their contracting but this is not quite true. Umbrella company contractors can also help to minimise their tax bill through allowances and some exemptions, so long as they qualify under the following rule: “That an employee or office holder may deduct expenses incurred wholly, exclusively and necessarily in performing their duties.”

On that basis the following expenses are worth considering:

Travel Expenses

Contractors are permitted to claim for the cost of their travel to and from their temporary places of work. Under these circumstances, the mileage rates they are allowed are 45 pence per mile for their first 10,000 miles during any fiscal year. Thereafter it drops to 25 pence per mile. The purpose of this allowance is so that it will cover both the running costs and the fuel costs of a vehicle. Furthermore, should a contractor be travelling to work merely as a passenger in a vehicle then they can still nevertheless claim 5 pence per mile. It is also permitted to claim for congestion charges and parking charges. However, you are not allowed to make a claim for speeding fines or for parking fines. Additionally, it is possible to claim for the cost of travelling via public transport, but you will need valid receipts. And lastly, similar rules apply to travelling by motorcycle and bicycle at mileage rates of 24 pence per mile and 20 pence per mile.

Accommodation, Food and Drinks Expenses

Contractors can also claim expenses for the cost of hotels or bed and breakfast accommodation. They are also allowed to make a claim for ‘reasonable’ costs of any additional meals that are had whilst using that overnight accommodation. There are no set prices or allowances when it comes to the cost of the accommodation but again it must be deemed ‘reasonable.’

Clothing Expenses

For contractors, any protective clothing that is worn every day in the performance of their work may be claimed as an expense. You are also permitted to claim for any clothing that is required for the execution of your contract and which would not reasonably be worn outside of working that contract. However, it is not permitted to claim for any ordinary or day to day clothing which could be seen to be part of an ‘every day’ wardrobe, even supposing you would not wear it anywhere other than at work. And you are not permitted to make a claim for any alterations to your working clothes or for any dry-cleaning costs.

Contractor Training Expenses

One area where contractors really should take advantage of the expenses rules is career training. That’s because any training related to your contracting career and your specialty can be put down as an expense. There are guidelines of course, (as mentioned above) that expenses must be ‘incurred wholly, exclusively and necessarily in performing their duties.’ Which means that the training must be wholly and completely relevant to your performance of your contracts. And by that they mean the current contract – it is not quite enough for the training to be merely relevant to that job or to be taken on ‘in connection with’ your general duties of your job.

Subscriptions Expenses

You are permitted by the Inland Revenue to claim back the costs of any subscriptions to industry societies, groups, learned bodies or professional bodies. 

Equipment Expenses

It is possible to make claims for expenses related to equipment but they must, of course, be supported by proof that the equipment is specifically required for the performance of your current contract and proof that the equipment is completely necessary in order for you to fulfil that current assignment. It is not possible to claim for general bits of equipment that would help your career or which would be ‘nice to have!’

Pension Expenses

Another good area for contractors (one of the few) when it comes to expenses is contractor pensions. Indeed they represent one of the last remaining tax breaks that contractors have. With that in mind it is well worth taking as much advantage as you possibly can! Contractors are permitted to invest part of their income into pensions schemes and this is then processed as a tax benefit for the contractor. They not only make savings on the income tax that would have been payable, but also, thanks to their pension contribution, will have lower employee and employer National Insurance contributions.

Payroll Giving Expenses

What exactly is payroll giving? It refers to a scheme that permits you to make flexible donations to any UK charities out of your gross salary. And this then means that you will get immediate tax relief on that donation whilst also making a contribution to a good cause.

Best Umbrella Company – 9 Tips for Contractors to Choose

Most of the time a PAYE Umbrella Company is the right solution for a contractor looking to spend few months contracting. Similarly, the contractors within IR35 should also opt for Umbrella Company instead of forming a limited company of their own. Umbrella Companies may not prove out to be the most tax-efficient solution, but it benefits the contractors in many other areas.

But if you are not sure about the company you are choosing, you may not get the value from it. To ensure that you are getting the best umbrella for contracting, you can follow these tips.

  • Ensure that Umbrella Company is the best possible solution for you: When choosing between Umbrella Company and limited company, ensure that you know the best solution according to your contracting needs.
  • Check Umbrella Company’s background: If your research tells you that Umbrella Company is the right solution for you, you need to run some background checks before you select a firm. Check its trading history and see if the company moves your money offshore at any stage. If this is the case, you may be getting into trouble with such Umbrella Companies.
  • Learn about fees and hidden charges: Before you go ahead with an umbrella company, check its fee structure. Some companies may not be clear about their fee structure and include some hidden fee. Learn exact fee that the company will be charging. Ask them about any possible processing expenses, tax expenses, and anything else that comes to your mind.
  • Check the nature of contract: When you sign up with an umbrella, ensure that it is giving you a full contract of employment. Company should also provide all the employment right that are available to employees in the UK.
  • Learn how to claim expenses: Ask the company about the process for claiming expenses. Sometimes, umbrella companies will make exaggerated claims as to tax. Such firms will usually claim unreceipted expenses. Firms will portray it as dispensation, although it has nothing to do with contractors.
  • How and when it pays you: Ask the company about payment details. Ask about the payment schedule and when you will be paid. The company should pay you in reasonable time after you submit your timesheets with the company.
  • Check the services and see if they include tax paperwork: You may have to submit tax return, P60 along with P11D form is the company does not have dispensation. Make sure that the company includes entire fee in initial charge and does not charge anything extra.
  • Learn about exit policy: When you are joining an umbrella company, learn about its exit policy. It should not charge anything when you leave the company. Check the terms and conditions at the time of joining the company and read the termination clause. You should also ensure that the company is balancing accounts with you when you leave, paying any surplus from holiday pay funds.
  • Check help and support: Check whether the company provides sufficient help and support for contractors. Companies with excellent support will flourish relationships with clients ensuring that they are comfortable with the company. Ensure that the company provides efficient and quick support when required.

What is Travel and Subsistence

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Tax Relief on Travel and Subsistence Explained.

A brief look at potential problems (and solutions) for Umbrella Contractors who want to explore tax relief on business travel and subsistence expenses.

Tax relief on travel & subsistence expenses has been the cause of a great deal of debate and changing regulation in recent years, with the courts drawing some very fine lines as to what qualifies and what does not. The following information should be useful in trying to navigate those lines:

The ‘wholly and exclusively’ Test

The main test for assessing if business expenses are allowable for the purpose of tax relief is set out in the Income Tax (Trading and Other Income) Act 2005 which states that relief will not be given for ‘expenses not incurred wholly and exclusively for the purposes of the trade. It does however, allow for any clearly identifiable proportion of any expense that is so incurred.

Consider the example of a retail premise with a flat above the shop that the shopkeeper occupies. The costs of various utilities – electric, heating, gas, insurance and repairs – will be shared both by the business and by the private individual and it is still possible for that individual to reasonably apportion many of those costs to either their business or to their private life. For HMRC and the courts however if any costs have a dual purpose there can be no relief at all – and there have been a number of cases through the courts that back this up:

Mallalieu v Drummond

The most famous is the case of Mallalieu v Drummond (1983) which was about a barrister who claimed back the cost of her black clothing which could be used for court wear. The judgement went against her, with the court noting that while her motive in purchasing the black clothing may have been for the purposes of business, she would also have had her own unconscious motives that would meet her personal needs of ‘warmth and decency’ and therefore she had a dual purpose. The rule is that if the sole purpose of the expense is a business purpose then it is allowed, even if there is an incidental benefit. Under Bentleys Stokes & Lowless v Beeson (1952), for example, the cost of business lunches for clients was allowed because the sole purpose of the lunches was business and an important part of the running of their solicitors firm.  The difference between the two cases is very fine, but the courts make a distinction based on both conscious motives and on unconscious motives which may give an incidental benefit.

Healy v HMRC

The case of Tim Healy (Healy v HMRC 2015) is a classic case of fine (ultra-thin) lines being drawn. Tim Healy was an actor appearing in Billy Elliot from April through December 2005 in the Victoria Palace in London. His home was in Cheshire and he went back there every weekend. He also rented a flat near the theatre for the duration of his employment in London and claimed back the cost of rental (£32,000 approximately.) He argued that he was classified as an itinerant worker since he was appearing in a number of productions both in the UK and abroad at the same time as he was in Billy Elliot. He was allowed the accommodation costs of the flat when it went to First Tier Tribunal although they did not allow any travel and subsistence costs at the flat or within London, but noted that had he been in a hotel he might have been allowed reasonable food and drink expenses.

HMRC then took the case to an Upper Tribunal who outlined a number of principles and sent it back to the First Tribunal to re-look at Healy’s motives. They then found out that he had actually rented a 3 bedroom flat so that his friends and family could come and stay with him, which consequently was ruled to be a dual purpose use for both business and private (the receiving of visitors in a private capacity.) They ruled that the private purpose was not incidental and that the expenses could not be apportioned and consequently no rental costs were claimable. In the end, had Healy actually stayed in the more expensive option – a hotel – he would have been able to claim a higher figure than the disallowed rental costs!

Samadian v CRC

Another important case that is worth looking at is Samadian v CRC (2014). In this case a Dr Samadian worked at two different NHS hospitals for an NHS trust. He also worked part-time for a private practice. There was an office at his house in which he did work-related admin but he did not have patients visit him there. He did however use consulting rooms at private hospitals to see patients and sometimes saw patients at their homes. HMRC accepted that the cost of his travel from home or hospital to see patients at home was claimable but they also said that the cost of travel from his house to the private hospitals or from the NHS to the private hospitals was not eligible for relief. That was because according to the First Tier Tribunal, Dr Samadian may have had a place of business at his home but his home was crucially not his business base. He had a number of places of business, only one of which was at his home.

The ‘Business Base.’

There have been numerous cases related to the notion of a business base when it comes to travel and subsistence expenses but there are two which relate specifically to the Samadian ruling:

Newsome v Robertson

Mr Newsome was a barrister who worked mostly at home but then claimed costs for his (occasional) travel between chambers and his home. In Newsome v Robertson (1952) Lord Denning ruled that Mr Newsome’s base was in fact his chambers and that because he lived quite a distance from that base for personal reasons, the cost of that travel was his choice and therefore not eligible for relief.

Horton v Young

In Horton v Young (1971) a bricklayer travelled every day between his home and any of the numerous building sites which he worked at (usually staying at one site for three weeks at a time.) His tools were kept at home and he did his books there and this qualified his home as his business base as far as the Court of Appeal was concerned, allowing him to claim the cost of travel to all of the building sites. How does this compare with Samadian? Samadian is difficult to square with this, because in that case there was no finding as to where his business base actually was, only that Dr Samadian actually had a number of different places of business, a slight but crucial difference. Nevertheless, when you examine Samadian, it is a very, very fine line. Dr Samadian did regularly book two consulting rooms at two different private hospitals for scheduled sessions but he did not have a specific business base at any of them and it is difficult to see how his home was not his business base! Regardless, as complicated and hair-splitting as it seems, that is currently the law and it has to be followed accordingly.

Subsistence

When it comes to subsistence costs the rules are currently defined by the Income Tax (Trading and Other Income) Act 2005 which sets out that reasonable subsistence costs while travelling as part of the course of trade are allowed so long as the travel costs themselves are also allowable. Alternatively, they are allowed if the trade happens to be ‘itinerant’ in nature or if the travel is not seen as a part of the trader’s regular travel pattern. Complicating matters is the fact that the courts have so far been reluctant to precisely define the meaning of ‘itinerant.’ Healy argued that he had an ‘itinerant’ profession but there was no finding on the matter. In Horton there was a finding that his profession was itinerant but this was one of the few cases where a finding was actually made and it remains the case that the legislation is still using terminology that has not yet been defined.

In conclusion, when looking at travel costs for self-employed workers it is necessary to assess firstly where their business base is and secondly whether any of the places they travel to from there could equally be seen as places of business and therefore affected by the same issues as those raised in the Samadian case. Further, it is essential that if any accommodation is leased on business for use as part of a long-term assignment then the clients sole motive in renting that accommodation must be a business motive. There must not be any dual purpose, (unconscious or otherwise) and the accommodation should only be adequate enough for the business purpose and nothing more. Hotel bills and reasonable subsistence are also likely to be allowable. Also worth bearing in mind is that if the client pays the self-employed worker’s accommodation, there will be no taxable receipt as a trader can only be taxable on sums received either as money or money’s worth and accommodation provision is neither of these. Owner managers of companies will be slightly better placed as they will benefit from being covered by the 24-month rule relating to travel and subsistence and the ‘temporary workplace.’

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