Using the services of an umbrella company can prove to be incredibly useful for contractors working through agencies, as they work towards taking the hassle out of contracting. Among the many areas that you will be able to get assistance with is managing expenses. To find out more about how to receive tax relief on any allowable business expenses that you incur, read on.
First of all, it’s worth looking at the benefits that come with using an umbrella contractor service. The process of calculating PAYE, National Insurance contributions, invoicing clients and collecting and filing claims can prove to be time-consuming, especially if you are trying to do it all by yourself. However, making the decision to use an umbrella company means that you become an employee of the umbrella company and as with any employer they calculate your PAYE and National Insurance contributions for you, at source. They also help you to claim allowable business expenses to ensure you get the best possible take home pay.
Using an umbrella company will free up more time that can be devoted to other professional responsibilities, for instance attempting to secure future contracts and working on current projects, so it is an option well worth considering.
Once you have registered, you will need to submit details of the expenses you incur on a regular basis, along with your timesheets to show how many hours you have put in, to the umbrella company. From here, your clients will receive an invoice and your income will be paid into your bank account.
However, what precisely counts as an allowable business expense? Although you’re already likely to have an idea of what these are, it is worth having a firm understanding well in advance to avoid confusion and to ensure you are filing everything that can be classed as an allowable business expense. After all, you don’t want to find out that you have been spending significant sums of your money on things to discover at a later date that you could have been claiming tax relief on them.
For clarity, expenses for contractors are defined as being “incurred wholly, exclusively and necessarily in performing their duties”. Common expenses include travel costs and hotel accommodation used on business trips.
There are some cases where you might not need to submit some receipts as part of the dispensation scheme offered by HM Revenue and Customs (HMRC) to obtain the tax relief, however you must always get receipts for every expense you will be claiming for and keep them safe.
This means National Insurance does not need to be paid on certain expenses and benefits, while you might also not have to enter it on to the P11D or P9D forms that you may have to submit to the tax body at the end of the financial year. However, you should always keep hold of these receipts, as HMRC may still request that you send these out at a later date.
Your ability to make such claims, however, will vary depending on the value and type of expense that you wish to file for. As a general rule, it is a good idea to speak to either your umbrella company or accountancy service provider for advice about what is permissible for you to claim based on your particular circumstances. In doing so, you will have the confidence of being able to handle all your tax commitments in an efficient, cost-effective manner.
What are your experiences of claiming expenses when using an umbrella company? Leave a comment and let us know.