Prior to April 2016, it was possible for Umbrella employees to utilise a wide variety of expenses to reduce their tax bill. By far the most popular expenses were travel and daily meals (these were known as subsistence expenses). Other common expenses, included:

• Mobile phone

• Accommodation

• Clothing

• Training

• Subscriptions

• Equipment

Expense Claims Have Changed

However, effective as of that date, HMRC legislation came into effect restricting the claiming of these expenses for any contractor deemed to be operating in a manner analogous to that of a permanent, full-time employee. The test applied to determine if this was the case was that of supervision, direction and control (SDC).

This brings tax treatment of contractors in line with those of permanent employees, who are unable to claim the costs of ordinary commuting or meals purchased while at work as an expense on their tax returns. In a nutshell, no “compliant” umbrella company is able to process non-chargeable expenses for tax relief purposes.

Whereas Umbrella companies were previously able to allow contractors to claim many expenses in addition to travel and subsistence, this is no longer the case.

How Can Expenses Now Be Claimed?

Expenses can still be paid – but these must be approved by your recruitment agency and paid over in addition to your normal daily or hourly pay rate. This matches the treatment that permanent, full-time employees can expect – expenses must be submitted, approved and reimbursed on top of salary. These are known as chargeable expenses.

It is worth noting that expenditure incurred solely for the purposes of your work can still be claimed on a tax return through HMRC – for example, if you’re required to purchase tools, uniform or equipment in order to work, you can still claim tax relief on these at the end of the year even if your engager won’t cover the cost.

PAY 25 offers a reduced cost Self Assesment tax return service, for PAY 25 employees.