Expenses Umbrella Company Contractors Should Claim
There are quite a few expenses umbrella company contractors should claim but don’t.
Chancellor Osborne stated in his Autumn Statement 2015 that he was going to take away the right of umbrella company contractors to claim travel and subsistence expenses against tax if they were under the supervision, direction and control of their clients.
It was immediately thought that this could be a complete game changer for umbrella companies and their owners. It was thought that it could be an existential threat to them.
After all, if contractors will pay a monthly fee greater than what they are able to get back in tax deductions then surely there was no point in them staying in the umbrella company.
Working through Umbrella Companies for maximum returns
Umbrella Company Contractors Don’t Claim Expenses
However, figures from giant group showed that 60% of the contractors in their umbrella company don’t bother claiming any expenses at all.
So the Chancellor shutting down the travel and subsistence expenses wouldn’t affect them at all.
Many of them probably don’t even know that it has happened. When April comes they will probably be oblivious to it.
So, for what could they have been claiming?
Allowable Umbrella Company Expense Claims
For a start, everyone travels to work so they could have been getting 45p a mile deductible for the first 10,000 miles and 25p thereafter.
If you are giving someone from an umbrella company a lift to work you can claim another 5p a mile for them.
Your parking fees are claimable as are any toll charges.
If you take the train or bus to work (or even aeroplane), you can claim the full cost back in tax.
Umbrella Company Expenses explained
No Travel and Subsistence After April
This is going to go in April for those who are supervised, directed and controlled. However, why do so many current umbrella company contractors not claim for any of this?
Surely, they don’t all live in walking distance of work.
Then there are subsistence expenses.
If you are working away from home you can claim the cost of hotels and meals.
You can also claim for rented accommodation although not for food. They reckon that you would probably eat anyway.
If you do any extra work and have to eat then you can claim it too.
Expenses Deducted from Wages Before Tax
All expenses are deducted from your ‘wages’ before tax is calculated.
However, 60% of giant’s contractors don’t.
giant are not unusual other umbrella companies tell me that more than half their contractors don’t claim any expenses.
All of the above are about to go in April for those who are supervised, directed and controlled at their client’s site.
However, it is strange that so few umbrella company contractors claimed them in the first place.
Maybe they couldn’t claim subsistence as they were not working away from home. However, everybody has to travel into work.
As the umbrella company deducts your tax and NI contributions from your salary before it ia calculated, it could be money saved at the higher rate of tax.
Umbrella Company Costs for UK contractors
Other Expenses Claimable by Umbrella Companies
So, what else can they claim.
They can claim for postage, stationery and phone calls related to their work
Also, they can claim for equipment like PCs and printers etc. that they use on their assignment
They can claim for fees paid as membership of trade bodies like contractors group IPSE
Again, they can claim for training costs and even the cost of eye tests and glasses.
A significant saving is tax-deductible for a pension scheme. Do they not claim for that?
Maybe the umbrella company has a pension scheme and claims for them but I don’t know.
Even the umbrella company’s fees are tax-deductible.
Maybe the umbrella company claims that for them automatically – but maybe they don’t. I don’t know.
Put in Umbrella Companies by Agencies
It just seems very strange that so many contractors could cut their tax bill but don’t.
Perhaps they just don’t know any better.
Maybe when they came into contracting they were edged towards an umbrella company by an agency who get bungs from umbrella companies for sending contractors to them.
Perhaps they have just remained in those umbrella companies ever since.
Contractor Tax Advice on umbrella company alternatives
Umbrella Company Contractors Outside IR35
It could even be that they are outside IR35 and able to use a personal service company but don’t know it.
The difference in tax paid by an IT Contractor earning £425 a day, or £100,000 a year is currently around £10,000 a year.
When the ability to claim for travel and subsistence expenses goes in April 2016 that could rise to £15,000 a year.
With the gap rising umbrella company contractors who do claim travel and subsistence expenses against tax may look at alternatives to umbrella companies.
Umbrella Company Alternatives for Contractors
They could sue a plain old personal service company which could save them £15,000 a year in tax and NI contributions.
Also, they could use a tax efficient Limited Company Solution which would save them £25,000, or more, a year.
They could also use an Offshore Umbrella Company which would save them £25,000 to £30,000 a year.
Tax Efficient Limited Partnerships for UK contractors
Umbrella Company Contractors Who Don’t Claim Expenses
However, as regards the 60% of umbrella company contractors who don’t even bother to claim expenses, one presumes that they will carry on regardless, oblivious to it all.
There are many expenses that umbrella company contractors could claim but don’t.
Over a period of ten years they may pay a quarter of a million more in tax than they need to.
Invested properly over a ten-year period that could easily be turned into half a million.
Perhaps a new term could be coined for those contractors, who, after all, are permanent employees of their umbrella companies for tax purposes.
Maybe they could be called semi-perms.