Guest blog written by The Danbro Group
‘Expenses’ should not be a source of confusion for Umbrella Company contractors. You’re entitled to claim ‘chargeable’ expenses as an Umbrella Company contractor, and you may also be able to claim certain tax-deductible, ‘allowable’ expenses too.
Your entitlement is dependent on your working arrangements – if you’re a multi-site ‘mobile’ worker, for instance – and, more importantly, whether the expenses you’re claiming for have been incurred wholly, exclusively, and necessarily for the purpose of your contract/assignment/employment duties.
Also referred to as billable expenses, chargeable expenses differ from tax-deductible, allowable expenses in that they are simply reimbursed to you by your end client or agency.
Here’s how it works in practice. Let’s say you go on a business trip and pay for your hotel and train tickets out of your own pocket, those costs may be submitted as chargeable expenses to be recompensed by your client.
Examples of chargeable expenses can include:
- Travel: This includes business mileage, car hire, or public transport use if you’re travelling to a temporary workplace.
- Parking & Tolls: Toll road charges or parking fees.
- Food, Drink & Accommodation: Daily subsistence while working away from home, such as meals out and overnight accommodation, providing the value of the expense is in accordance with your agency/Umbrella Company’s policy of reasonable rates.
- Equipment: Tools & equipment purchased for use wholly, exclusively and necessarily in the performance of your duties. This may also include computer hardware & software.
- Work Wear: Clothing that is essential and specific to your job.
- Training: Any approved courses relating to your contract/assignment.
- Professional Subscriptions: Memberships and subscriptions to professional bodies related to your role.
- Business Calls: Telephone calls made specifically for business purposes.
- Working From Home: If you work from home on a regular basis, you may be able to claim a small proportion of your home utility bills, such as your gas, electric and broadband costs.
‘Allowable expenses’ refer to expenses that can be deducted from directly your income. By making a claim for the allowable expenses you’re entitled to, you could significantly reduce your taxable income and save yourself some money.
An example could be that you use a room in your home as an office and are therefore entitled to claim a portion of your mortgage interest as an allowable expense, thus reducing your taxable income.
To add an extra layer of complexity, though, chargeable expenses can be both allowable and non-allowable for income tax relief purposes, depending upon the nature of the expense you’re claiming for.
To be considered allowable, they must adhere to the following criteria:
- It’s a ‘non-commuter’ expense.
- It has been incurred wholly, exclusively, and necessarily for the purpose of your contract/assignment/employment duties.
- You can provide evidence of the expense in the form of receipts.
- Your permanent place(s) of work has been verified and you can provide details of and reasons for the purpose of the travel/expense you’re claiming for.
- The value of the expense is in accordance with your agency/Umbrella Company’s policy of reasonable rates.
Claiming Expenses Through HMRC
It’s also worth noting that if you do not have an agreement in place to offset chargeable expenses through your pay, you may still be able to make a claim via HMRC.
You can use a P87 form to make a claim at any point in the tax year for tax relief on allowable expenses that have not been reimbursed by your employer, so long as the value of your claim/s is no more than £2,500. If it is, you’ll need to submit your claim via your Self-Assessment Tax Return at the end of the tax year.
Multi-Site ‘Mobile’ Workers
A multi-site mobile worker is, typically, an individual required to work across multiple sites or locations as part of their regular employment duties. Instead of having a fixed workplace, a multi-site mobile worker might have several workplaces that they need to attend over a given period, depending on their assignments or tasks.
From a taxation perspective, the distinction of a multi-site mobile worker is relevant when considering the treatment of travel expenses. Commuting from one’s home to a regular place of work is generally not a chargeable or allowable expense. However, if someone has to travel between multiple work sites, the cost of travel between those sites might be treated differently. The determination of whether a place of work is considered ‘temporary’ or ‘permanent’ can influence the tax treatment of a travel expense.
Multi-site mobile workers tend to make more frequent business travel from permanent workplace/s and expenses are not billed to the end client.
There are some allowable expenses that multi-site mobile workers are entitled to claim, providing they are legitimate and that the expense has, you guessed it, been incurred wholly, exclusively and necessarily for the purpose of a contract/assignment.
For instance, if you have a regular workplace, but you’re sent by your client to work temporarily at another location, HMRC may allow you to claim a tax deduction in respect of travel and subsistence expenses incurred whilst travelling to that temporary workplace.
Likewise, many mobile contractors who regularly travel away from their main place of work tend to be eligible to claim travel and subsistence expenses. It’s broadly similar to the expenses a permanent employee can claim when required to work away from their permanent workplace. Expenses are paid at the discretion of your employer (Umbrella Company) and it’s also possible, depending on your contract, for a geographical area to be considered your permanent place of work.
Umbrella Company Support
The legalities and determinant factors surrounding contractor expenses are complex. But by working with a reputable, FCSA accredited Umbrella Company, like Danbro, you can be sure that your claims align with HMRC’s variable guidelines. Here’s why this partnership is important:
- Guidance: Danbro offers advice based on experience and expertise, and they tailor their guidance to suit each individual contractor’s circumstances.
- Efficiency: Danbro’s dedicated team will streamline the process for you, helping you avoid further painstaking paperwork and ensuring claims are submitted accurately and on time.
- Compliance: With Danbro, you can rest assured that your affairs will always remain HMRC-compliant in the face of any regulatory changes.
The Danbro Group are one of the country’s leading providers of umbrella employment solutions. For almost a quarter of a century, they have been helping hundreds of thousands of UK contractors to achieve their ambitions in business. Visit their website today to find out how they could help you.