Viewing Umbrella Company Business Expenses from 4 Basics of an Umbrella Company - Umbrella Company - The Basics Written by Contractor Supermarket

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Umbrella Company Business Expenses

When a contractor uses the services of an umbrella company, not only do they benefit from a life free of administration and the onerous burden of paperwork, but also benefit from the opportunity of paying less tax.

This is made possible by claiming for various business expenses.

HMRC dictate exactly what business expenses are allowed which currently include such items as: professional subscriptions, postage and certain training costs.

Another of the key expenses includes the cost of travel to your assignment, together with daily subsistence (food & drink).

Marcus Glover, Managing Director of Springboard Umbrella Company - a featured umbrella company on Contractor Supermarket, explains:

"Employees who work from home are entitled to a tax deduction for the expense of travel to a temporary workplace; this includes the cost of any necessary meals & drinks (subsistence costs).

Contractors who work through an umbrella company are eligible to claim travel expenses.

"They are costs incurred in travelling that are additional to any costs that would have been incurred if it were not for the business travel. Travel to a temporary workplace is an additional cost."

Contractors should be aware that if it is your intention is to work on a single contract and then leave your umbrella company you would have to pay back the tax you had previously saved from your expenses.

This is because your single assignment would be deemed as your permanent workplace, and travel between home and office is treated as normal commuting - not an allowable business expense.

 

Glover highlights the main rules for claiming business expenses:

Umbrella Companies Business Expenses Rule 1

You have employment rights through your employer, which is your umbrella company. Some of your rights are ‘statutory' rights (e.g. sick pay, maternity pay, paternity pay, and national minimum wage).

Other rights are granted through your contract of employment from your umbrella company (e.g. notice period, place of work, and terms & conditions of assignment).

From a contractual position you will find that:

Your end client will enter into a contract for services with your recruitment agency

Your recruitment agency will enter into a contract for services with your umbrella company (your employer)

You will enter into a contract of employment with your umbrella company

Your umbrella company will provide you with assignment details for each contract you undertake.

 

Umbrella Companies Business Expenses Rule 2

You will use your home office to:

Find new contracts

Undertake skills training

Use as a base to travel to your temporary assignments

Complete the umbrella company paperwork for your current assignment

Your assignments therefore take place at temporary workplaces

Why is this important? Because:

1. You can claim an allowance for use of your ‘home as office' - which is free of tax
2. You can claim an allowance for business travel to a temporary workplace.

 

Umbrella Companies Business Expenses Rule 3

As your employer, the umbrella company is obliged to check and authorise business expense claims and where possible verify claims with supporting evidence (e.g. a receipt).

In some instances employers (the umbrella company) are allowed to reimburse some expenses incurred by employees (contractor) who are carrying out their employment duties at scale rates.

A scale rate is calculated and pitched at a fairly modest level (say, £10 per day) which, taking one day with another, is intended to cover the average expense incurred by a contractor

It is not pitched at a level intended to cover the highest amount that might be spent by the contractor

It is not pitched at a level intended to provide an overall profit element to the contractor

Sometimes knowing what business expenses you can claim can be confusing. Getting it wrong can mean that you end up paying more tax than you need to, or worse still, find that HMRC will ask you to pay back money for claiming incorrect expenses and not paying enough tax.

For some contractors this could mean a hefty and unexpected bill of hundreds, if not thousands ,of pounds.

Glover concludes:

• "The best way for a contractor to remain compliant with these complex laws is to use the services of a reputable umbrella company.
• Springboard Umbrella Company contractors are guaranteed to be on the right side of the law, whilst maximising their take home pay and staying on the right side of HMRC at all times."

 

Visitors who read this article went on to read these articles:

1. Ask an Expert
2. How to understand a dispensation
3. The IR35 test for contractors
4. Over 70,000 of the latest contract jobs in the UK
5. Umbrella company reviews

 

 

written on2010-08-21 02:28:05

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