Top 5 umbrella company expenses things to still do in 2024 under 2016's T&S rules
As another 'D-Day' for umbrella companies potentially approaches – and yes I’m talking about October 30th when Autumn Budget 2024 is delivered, it’s worth recapping the ‘D-Day’ that was April 6th 2016, writes Lucy Smith, founder of Clarity Umbrella.
As I outlined at the time to ContractorUK, 06.04.16 saw Travel and Subsistence (T&S) rules for umbrella company contractors introduced, as legislation “restricting” T&S expenses for such workers became law on that day.
Then and now, there’s significant ‘misunderstanding’ on umbrella expenses
Now, some eight years on, it appears that there are still umbrella companies operating that still don’t really understand the difference between expenses for tax relief purposes and rechargeable expenses, and what complex rules need to be applied before determining how to pay out expenses to contractors.
T&S expenses tend to be those that are referred to as ‘tax relief,’ for umbrella company employees who are not considered under Supervision, Direction or Control (SDC).
And this is where the first issue begins!
With HMRC's Travel and Subsistence rules, what is Supervision, Direction or Control?
SDC is not something defined by law and is therefore very subjective.
When the April 6th 2016 legislation was mooted in conversations with HMRC, we were advised that if a contractor was caught inside IR35 (admittedly a very different subject to SDC), then it would be very unlikely that they wouldn’t be caught by SDC and as such, tax relief would not be allowable in the majority of cases.
What the taxman told us at the time (cont).
If there was a determination by the end-client that the contractor is not under SDC, then the contractor could try to claim T&S expenses tax relief via self-assessment. Or so was the suggestion by HMRC at the time!
However, there were umbrella companies on April 7th 2016 who set about performing their own ‘SDC’ test to see if it was possible to claim T&S, via the payroll with a view to gaining the tax relief at source.
That was, and still is a very dangerous game to play in my opinion!
Mainpay case is a cautionary tale
Mainpay v HMRC is a case with activities by the umbrella that pre-date the introduction of the 2016 legislation. But the case very clearly highlights how complex the consideration for expenses was, and still is.
And the Mainpay case shows how an error of judgement could cause an umbrella company some serious problems.
So, what do you need to consider as a contractor who wants to be able to claim expenses when working via an umbrella company, so that you can determine if the role being offered is right for you?
A recommendation
My recommendation is that you work on the basis that T&S expense tax relief is a thing of the past.
Instead, build that loss into your rate wherever possible, and move on.
We know that this removal of tax relief on expenses may serve to make fewer roles available to you, as previously travel would have been taken into account when processing payments. So now your only option is to either look more locally for opportunities (where you need not incur significant travel costs) or push for a rate increase.
Top 5 things to still do in 2024 under April 2016’s Travel & Subsistence (T&S) rules
If you have an end-client who is looking to reimburse expenses, pay close attention to five key things to ascertain if the umbrella company may be taxing things properly, where applicable.
And please note, this is a complicated area, so these five really are just a few of the many pointers to consider.
- Check out the B-2-B contract that the umbrella has with the agency, as this should categorically detail your required location of work under the contract.
- Any T&S that is incurred to and from this location can be repaid but would be taxed as a benefit.
- If your travel becomes regular and repetitive, again consideration by the umbrella company should be made as to whether this now looks like your permanent place of work. If so, again it would be taxed.
- Any expenses which could have a duality of purpose (an example of this is Wi-Fi in a hotel), should be taxed as it could be used for personal usage.
- Any expenses should be receipted, and if you cannot provide a receipt, then don’t be surprised if the expenses come through with tax applied again.
When expenses get taxed without consideration…
With these five, keep in mind that umbrella companies must keep very accurate records of any expenses processed, so do expect some paperwork to come along with any expense claims where the agency is reimbursing costs, and if you don’t want to provide such information, then don’t be surprised if the expenses are taxed without consideration!
Final (Autumn Budgetary) thoughts
Speaking of ‘consideration,’ any Autumn Budget 2024 announcement affecting umbrella companies should be double-checked by you, the contractor, against the details within this updated article, which for fuller context ought to be read with its original. While it’s likely that any October 30th announcement by the chancellor about umbrellas will concern their regulation, this specific area of expenses cannot be ruled out as being affected.
