When it comes to claiming expenses, it can become a tedious task for the contractors. If you have been working through an umbrella company, you must have heard about claiming expenses. It is one of the most talked-about topics among contractors. So, how does it work?
Let’s find out.
What expense can an Umbrella company employee claim?
If you are planning or have been working through an umbrella company, then these are the expenses that you may claim:
These costs include any expense critical for your work performance. Business costs include work materials (textbooks, manuals), protective clothing, training expense, equipment, mileage, computer software, parking fees, etc. Your umbrella company will reimburse them without NICs and taxes.
Client billable costs
The agency or the end client agrees to pay these expenses before the project begins.
Non-client billable costs
The agency or the client won’t reimburse these, but you can claim them as allowable charges from HMRC. The condition is that you incur the costs “wholly, exclusively and necessarily” in your work performance.
Some allowable cost examples that an umbrella employee can claim are.
- Protective clothing
- mobile phone, internet, postage
- business entertainment
In April 2016, the UK government introduced and implemented the SDC to create a level playing field for contractors and permanent employees. This is in regards to subsistence and travel cost rules.
If you as a contractor fall under SDC, you cannot claim tax benefits on subsistence and home-to-work travel expenses.
What is SDC?
SDC stands for Supervision, Direction, and Control.
- Supervision: When you work under a supervisor or another person. The purpose of supervision is to ensure correct work execution according to standard procedures.
- Direction: Getting instructions, advice or guidance on how to do your work.
- Control: When a person with authority dictates how, where, and what work an employee will do. If someone can shift you from one project to another, then you’re deemed under control.
As an umbrella company employee, how will SDC affect your expenses?
As an umbrella company contractor, if you fall under SDC, you cannot claim subsistence and home-to-work travel expenses. But, SDC legislation does not affect all the costs like work trips incurred during the work assignment.
Subsistence and travel expenses explained.
Subsistence expenses include all the expenses covering meals and other requirements sustained when the employee is away from their workplace.
They include accommodation costs, tolls, parking bills, business calls, food and beverages, mileage, and other travel expenditures.
Travel expenses, on the other hand, include:
- Trips to and from the workplace (excluding regular travel)
- Necessary travel for the contractor to perform their duty.
- Trips to and from a contractor’s temporary workplace.
Understanding temporary workplace
A temporary workplace is where the contractor’s engagement period is shorter than 24 months or spends less than 40% of their work time.
What are the exceptions to the SDC legislation rule?
The SDC legislation rule is not applicable if the contractor offers their services entirely within the client’s home. These services include gardening or housekeeping services at the client’s home.
If you’re a mobile worker and fall under SDC, you can claim mileage for travelling from one client to another. If you’re wondering, a mobile worker is someone who doesn’t have a fixed workplace, or works in various locations, works away from their regular workplace.
Expenses that you can claim if you don’t fall under SDC
As a contractor who is not under SDC, you can claim client billable, non-client billable, and business costs as mentioned above.
Apart from it, the regulatory body will consider your every workplace as a temporary workspace. It means you can claim subsistence and travel expenses, given that you incur them “wholly, exclusively and necessarily” for your work performance.