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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Limited company expenses & tax allowances guide
As a limited company director, you want to run your business in the most tax efficient way possible.
One way to achieve this is to claim for allowable business expenses correctly, so that you don't wind up having to pay more tax than you are legally obliged to.
It can be tricky figuring out what you can or cannot claim for, and this is where our guide comes into play.
We'll run through the different expenses you can claim for, but bear in mind that this isn't a definitive guide. Do check out our resource hub on limited company tax topics for more information, or consult our specialist accountants at Forma if you need personalised advice.
Can I expense my home office?
There are two methods you can use to work out your allowable home expenses: you can claim a flat rate allowance (also known as simplified expenses), or claim a proportion of your bills. For further information on these methods, refer to our expenses and allowances guide for limited company directors and the self-employed.
If you're a sole trader and aren't sure which method is the better option for your business, you can use Gov.uk's simplified expenses checker tool.
What is the 24 month / 2 year rule for expenses?
The 24-month rule, also referred to as the two-year rule, enables contractors to claim travel expenses from their home to a client's office, as long as it is classed as a "temporary workplace".
The following conditions must apply for a work location to be classed as a "temporary workplace"
- The period of engagement is less than 24 months
- The contractor should spend less than 40 percent of their time at the workplace
Essentially, if you work at the client's office for more than 24 months, or spend more than 40 percent of your time at the location, it is considered a permanent workplace-and as such, you won't be able to claim travel or subsistence expenses.
Bear in mind that this is subject to the SDC legislation introduced in April 2016. Further elaboration on SDC can be found in our guide to claiming expenses as an umbrella company contractor.
Do I have to pay tax on expenses?
You do not need to pay tax on allowable business expenses. These are essential business costs that are incurred "wholly and exclusively" for the purposes of running the business. They can be deducted against your income, thereby reducing the amount of tax that you need to pay.
Can I expense Parking?
You can claim parking costs as a deductible expense, as long as it is incurred wholly and exclusively for business purposes. Other allowable business travel expenses include tolls and congestion charges. You can't claim parking fines as a deductible expense.
Can I expense Pensions?
As a sole trader, you can't claim pension contributions as a deductible expense. However, you can get personal tax relief from contributions you make into your pension scheme.
If you're a limited company director, you have the option of making pension contributions through your company. This will reduce your company's profits, and as such reduce the amount of corporation tax your company pays.
Why are expenses important?
Expenses are important as you can claim them against your revenue, which helps to reduce the amount of tax you need to pay.
What expenses can I claim as a Limited Company Director?
As a limited company director, there are various allowable business expenses you can claim for. These include (and aren't limited to):
- Pension contributions
- Staff expenses
- Business mileage
- Mobile phone, landline and broadband expenses
- Costs of forming your company
Further information on the types of expenses you can claim for can be found in our limited company expenses and tax allowances guide.
Can I expense Conference expenses?
Yes, you can claim the costs of attending business-related conferences as a deductible expense.
Can I expense general travel expenses?
General travel expenses can't be claimed as a deductible business expense. You can only claim for travel-related expenses as long as the trip is made wholly and exclusively for business purposes, and isn't considered 'ordinary commuting'.
Can I expense Legal costs?
The costs incurred for engaging professional services-such as hiring a lawyer-can be claimed as an allowable expense, as long as these services are carried out solely for business purposes.
Can I claim using the cycle to work scheme?
Employers who purchase bicycles and safety equipment for loan to employees can benefit from treating the purchase as capital expenditure eligible for corporation tax relief. VAT can also be claimed back on the purchase unless you are registered on the VAT flat rate scheme.
The loan of bicycles and safety equipment under the cycle to work scheme removes any tax charge to the employee that would usually arise on a taxable benefit.