The Contractor Co-op approach to Expenses
The Contractor Co-op has taken the decision not to offer its employees the option to claim expenses on an ongoing basis. This may seem to put us at a disadvantage to some other umbrellas in the market but take a moment to reflect on what can legitimately be offered by umbrellas to their employees and you will see that you aren’t missing out.
The ability to claim expenses could potentially save you an amount equivalent to your marginal tax rate on the value of the expenses you claim, so for example, if you are able to claim £100 each month the potential saving to a higher rate taxpayer for a full year is £480.
This small saving needs to be compared with the costs and potential risks of making an expense claim.
HMRC have sought to restrict contractors from claiming expenses by introducing legislation which has significantly reduced the number of eligible contractors. It is also true to say that HMRC police the payment of expenses very closely, so that any procedures must be robust and clear to ensure that only qualifying payments are made. In the event that expenses are wrongly claimed it would be possible for HMRC to hold the Contractor Co-op liable for the outstanding tax liability.
There may, however, be contractors who feel they are in a position to legitimately claim expenses which have been incurred wholly, exclusively and necessarily in the course of performing their contract work. In this situation we can assist you in making a claim for tax relief on your allowable expenses at the end of the tax year via the Self-Assessment process.
There are many types of expenses which contractors could consider they are in a position to claim, for example, business equipment and computer software if they are required under the terms of your engagement and subscriptions to HMRC approved professional bodies. However, the majority of expense for which contractors are likely to want to claim fall under the heading of ‘travel and subsistence’.
In 2016 the ability of contractors who work through umbrella companies to claim tax relief on travel and subsistence expenses was seriously affected by new rules introduced by HMRC. As a result, with effect from 6th April 2016 contractors who are under the supervision, direction or control (SDC) of their end client are unable to claim travel and subsistence expenses. Furthermore, HMRC consider all contractors who are working through an umbrella company to be under the SDC of their client unless they can prove the contrary.
What is Supervision, Direction or Control?
This is a notoriously difficult area of tax legislation, however in summary:
Supervision – when you are being overlooked at your place of work to ensure that you are carrying out your work in accordance to your contract. If you are receiving assistance, advice or help from anyone in your place of work, this can also count as supervision.
Direction – when you are being given clear instructions, guidance or assistance on how to carry out your work.
Control – when you are being dictated to as to what work you do and how you go about it.
For contractors who believe they are not working under the SDC of their end client, we are happy to refer you to WTT Legal for an initial consideration of your SDC position. If they conclude that you are not under SDC, they are then able to refer you to WTT Consulting who will be happy to prepare a Tax Return on your behalf which will include your expense claim. If your claim is successful you will receive a tax repayment in respect of any allowable expenses after the end of the relevant tax year.
To discuss the ability to claim expenses in more detail please call us on 020 3468 0009 or email firstname.lastname@example.org.
At the Contractor Co-op we do not feel that the potential benefit to a few contractors is sufficient to outweigh the potential risk to the majority.
The rules are the same irrespective of
which payroll umbrella company you choose