I for one, consider it good news that HMR&C are considering asking for receipts to prove scale rate expense claims are warranted. This might help to put an end to the misleading marketing claims made by certain Umbrella Companies who are making promises of 80 or even 85% of their gross income value.
HMRC originally introduced scale rate charges to reduce the burden of reimbursing costs to their own staff. If the staff member has incurred a cost during the course of their job, that is greater than the cost that they would normally incur, then that person is entitled to claim the full scale rate allowance regardless of their actual expenditure. Any false claims would mean that the employee would run the risk of dismissal, criminal proceedings, imprisonment etc.
The same scale rate allowances have been applied to Umbrella Company dispensations and some are using it as a carte blanche to allow all of its contractors to claim the full allowance, regardless of whether or not the criteria above has been met.
If these expenses are processed without asking the contractor whether or not they have actually spent that money, the individual, not the Umbrella Company, may be liable for an additional income tax liability. To quote directly from HMR&C’s website:
“Scale rate payments are only paid when the employee has incurred an allowable expense. A scale rate payment which is paid irrespective of whether the employee has incurred an allowable expense is simply a payment of earnings”
This means that, if an Umbrella Company is automatically processing a daily allowance for their employees as an expense, when they actually haven’t spent that money, HMR&C will consider it to be earnings and therefore subject to tax.
Therefore, before you join an Umbrella Company, you should ask them whether or not they process daily amounts automatically and whether these amounts are subject to tax relief or not. Just 6 months of claiming £35 per day expenses for costs that you haven’t incurred could leave you with a tax bill of £1,820.00.
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