What expenses can I claim for as an umbrella company contractor?
When you work through an umbrella company, there are a few types of expenses you may be able to claim for:
Client billable expenses
These expenses are agreed upon prior to the engagement, and are paid for by the end client or agency.
Business costs are expenses that are necessary for the performance of your work.
Examples include professional materials (such as textbooks and manuals), training costs, protective clothing, business equipment, computer software, mileage, parking fees and more. These will be reimbursed tax and NICs free by your umbrella company.
Non-client billable business expenses
These expenses won’t be reimbursed by the end client or agency, but can be claimed as allowable expenses from HMRC—provided that the expenses are incurred “wholly, exclusively and necessarily” in the performance of your work.
Here are some examples of allowable expenses you can claim for:
- Professional subscriptions
- Protective clothing
- Stationery, postage, phone and internet
- Business entertainment
What is the SDC legislation?
Introduced in April 2016, the SDC legislation was implemented to level the playing field between permanent employees and contractors or freelancers in relation to travel and subsistence expense rules.
If a contractor is deemed to be under SDC, he or she won’t be able to claim tax relief on home-to-work travel and subsistence expenses.
SDC is defined as:
- Supervision: Being overseen by a manager, supervisor or another individual when performing your work, so as to ensure that the work done is performed correctly according to the standard specified
- Direction: Being provided with instructions, guidance or advice on how to perform your work.
- Control: Being dictated by another individual with the authority to decide where, how and what work you do. You’re deemed to be under control if someone else has the power to move you from one job or task to another.
How does SDC affect expenses I can claim for as an umbrella company contractor?
If you’re subject to SDC, you won’t be able to claim home-to-work travel and subsistence expenses. Bear in mind that expenses incurred during an assignment, such as an occasional trip to a different workplace (detached duty travel) aren’t affected by the SDC legislation.
What are travel and subsistence expenses?
Subsistence expenses refer to expenses for meals and other necessities incurred while an employee is away from a permanent workplace.
These include expenses for food and drinks, accommodation, business phone calls, parking charges, tolls, mileage and other costs of travelling.
Travel expenses are expenses incurred for:
- Travelling that is required for a contractor to perform his or her assignment
- Trips made to and from a workplace (excluding normal commuting)
- Trips made to and from a temporary workplace
What is defined as a temporary workplace?
A worksite is considered to be a temporary workplace if a contractor’s period of engagement is less than 24 months, or if the contractor spends less than 40 percent of his or her time at the workplace.
Are there exceptions to the rule?
The rule doesn’t apply if a worker’s services are provided wholly in the end client’s own home—such as when a contractor provides gardening or cleaning services in the home of a client.
And if you’re under SDC, but are a mobile worker, you’ll be able to claim mileage for travel from one appointment to another. A mobile worker refers to an individual who works in multiple locations, works away from their normal workplace or doesn’t have a fixed workplace.
What expenses can I claim for if I’m not subject to SDC?
You’ll be able to claim for the client billable, business costs and non-client billable business expenses we’ve outlined above.
Additionally, each of your workplaces will be considered a temporary worksite. This means that you’ll be able to claim travel and subsistence expenses, provided that these are incurred wholly, exclusively and necessarily for the performance of your work.
Download our Ultimate Expenses Guide
How do I determine my SDC status?
Your SDC status will be assessed by your umbrella company before the start of each assignment.
In general, your provider should have a compliance team who will obtain information through a questionnaire about various aspects of your assignment—such as the level of experience needed, the level of supervision required and the amount of information or advice that will be provided.
Your provider will then determine your SDC status, and provide recommendations about moving forward with the assignment.
What’s the process for making expense claims?
Generally, you’ll be asked to upload expenses claims on a weekly or monthly basis, and your provider will reimburse client billable expenses and business costs. You may claim tax relief on-client billable expenses via Self Assessment tax return or the P87 form at the end of the tax year.
Your umbrella company will have a process in place for handling expense claims. The process may vary across different providers; some may provide assistance or complete the necessary tax forms on your behalf—so this is something you’ll want to clarify when you’re speaking with a prospective umbrella company.
What are record keeping requirements I need to know?
Your umbrella company will require receipts or other evidence for expenses claims, so you’ll need to keep full records of your expenses.
Additionally, these records should be kept for a minimum of six years, as you’ll need to show proof of your expenses in the event of an HMRC investigation.
Download our Ultimate Expenses Guide
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Umbrella Companies Explained: FAQs for Contractors
To help you along, we've compiled a list of FAQs that contractors often ask:
Umbrella vs Limited Company
Let's compare the advantages and drawbacks of setting up a limited company VS working through an umbrella company.
Why set up a limited company?
- Limited liability
- Tax efficiencies
- Increased credibility
Why not set up a limited company?
- Increased legal and administrative requirements
- Less privacy; details of the company are publicly available
Why work through an umbrella company?
- Ease of use
- Entitled to statutory benefits
Why not work through an umbrella company?
- Costly way to operate
- Lack of control
Can I expense Food & drink?
You can claim "reasonable" food and drink expenses when you're travelling for business, if:
- You're making an occasional business trip outside of your normal pattern of travel
- You're staying overnight, and are also claiming accommodation costs
- Your trade is, by nature itinerant
Can I expense Optical expenses?
You can claim an eye test as an allowable expense, if it is required for the use of visual display equipment in your work.
In general, you can't claim for glasses or contact lenses unless these items are 'wholly and exclusively used for business purposes', and you're able to prove that you don't use them outside of your working houses. One example would be that you have several pairs of glasses, one of which is used only when you're at work.
Claiming mobile phone expenses when self employed
"Can I claim my smartphone as an expense?" is a simple, but a common question for first-time contractors.
That's because HMRC's expenses rules can be confusing, and while you want to be sure that you're running your business as tax-efficiently as possible, it's just as important to be in the good books of HMRC.
We've put together a short guide so you can get a quick overview of the basics. If there are any areas you're unsure about, you may check in with our accountants at Forma so you can be sure that you're claiming your limited company expenses correctly.
What are the advantages of an Umbrella company?
The advantages to working through an umbrella company include:
- You'll deal with less administrative work. It's also quicker and easier to join an umbrella company, compared to setting up your own limited company.
- As an employee of the umbrella company, you're entitled to statutory benefits
- It can be a great option for short term contractors, as they won't have to go through the hassle of setting up a limited company and making the arrangements for it to be dissolved.
Why should I claim mileage?
As a contractor, freelancer or small business owner, it's important that you make the most of what you can claim-especially as the trips you make can add up over time. Here's an example: if you make a 25-mile round trip twice a week, it adds up to 2,400 miles a year. That's £1,080 that you can as deduction against your business revenue.
To learn more, read our guide on how to claim business mileage.
Can I expense Marketing costs?
You can reclaim marketing expenses as long as these are used solely for business purposes. This applies to both one-off costs and ongoing fees.
Can I expense Taxi fares or an Uber?
Taxi fares are generally deductible, as long as the fares aren't incurred for ordinary commuting. According to HMRC, a commute is a trip you make most days between your home and permanent workplace.