Claiming Tax Relief Through an Umbrella Company

Last year on April 6th HMRC introduced new guidelines that changed the way contractors claim expenses. Now, contractors working through umbrella companies are classed as being under supervision; therefore, the default position of HMRC is to treat them as full-time employees.

When you work as a contractor, you must now prove that you are eligible to claim tax relief. If you’re unsure whether or not you fall under Supervision, Direction and Control (SDC) guidelines, the following article will help clear things up.

How do I Claim Expenses?

If you are outside of SDC and have an agreement with your client which states that your expenses will be covered, you must save and submit receipts using the umbrella companies online portal. When claiming tax relief all of these receipts must be stored until your self assessment tax return is due.

What Happens If I Wrongly Claim Expenses?

If you make the wrong claims both you and the umbrella company could be liable for damages. HMRC will take further action and reclaim debts from the umbrella company if the information they have provided is incorrect. Alternatively, you, as a contractor, will be liable if you provided incorrect information or made attempts to immorally claim expenses.

What If I’m Inside IR35 Legislation?

When you are working as a contractor through your own personal service company, you will be unable to claim tax relief if you are inside IR35 legislation. This occurs when you don’t meet HMRC’s definition of “self employment.” IR35 legislation will result in increased tax, National Insurance liabilities, and your right to claim tax relief. If you’re ever uncertain about your rights, simply ask HMRC.

What Travel Expenses Can I Claim?

If you don’t fall under SDC you can claim tax relief if you are required to travel in order to carry out an assignment. However, HMRC will set a cap on the amount you’re permitted to claim when traveling in your own vehicle. If you don’t travel in your own vehicle, you’ll have to agree the amount with your client, while if you use public transport, you’ll have to agree the amount with your employer.

Do I Need an Accountant?

Accounting is one of the necessary evils of the business world. We all hate it, yet there’s no getting around it. Even if you hire an accountant and/or bookkeeper, there are various aspects that you must conduct yourself. Fortunately, technology has provided us with many time saving features that will take the hassle out of the process. Due to the smartphone revolution it’s now possible to keep track of all your umbrella company expenses in real time. Recommended apps include: Fresh Books, Quick Books Online, and Zoho Books.

Lastly, if you’re thinking about using an umbrella company as your payroll provider, check out Churchill Knight’s umbrella contractor calculator. This will help you determine how much take home pay you could make. All you need to do is input your rates and email address, and then you will receive a custom calculation, taking tax and National Insurance Contributions (NIC) into account.

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