If you have researched umbrella companies you will probably have come across the term ‘Dispensation’ or even ‘Special Dispensation’. It is a word that, for some companies, forms the basis of advertising and marketing campaigns e.g. ‘Contractor dispensation – high take home pay’ or ‘HMR&C approved expenses dispensation’. So, will an umbrella company’s dispensation increase your take home pay and does it prove that their expenses policy is approved by the HM Revenue and Customs?
NO. I’ll repeat that – NO.
All companies can apply to HMR&C for a dispensation, it is not something that is only granted to umbrella companies and its main purpose is to save accountants time. Normally, when an employee is paid for an expense an accountant will file a record of it on what is called a form P11D, he will also be required to have the employee’s receipt to support the expense. This information is then sent to HMR&C. However, if you have a dispensation you are not required to see employees’ receipts or to file a P11D for all those items detailed within it. For instance, a company may have a dispensation for accomodation costs of £50 per night; if an employee spends £50 or less on a hotel per night the expense will not need to be recorded on a P11D and the company will not need to see a receipt.
So what does it mean if you are a contractor working through an umbrella company? Well, actually it’s probably easier to tell you what it doesn’t mean:
It doesn’t mean that you can claim, as expenses, all the items that the umbrella company has listed on their dispensation i.e. if you don’t stay away from home overnight you cannot claim accomodation costs.
It doesn’t mean that you can claim the value listed on the dispensation regardless of how much you have spent i.e. if you spend £40 on a hotel, you claim £40.
It doesn’t mean that you can claim more expenses through one umbrella company than another. Remember the dispensation is only to minimise form filling, it is not a guide to allowable expenses.
It doesn’t mean that HMR&C have approved an umbrella company’s expenses policy. The expenses that any employee can claim are determined by HMR&C not by an umbrella company.
It doesn’t mean that you are safe from investigation by HMR&C. Just because your umbrella company doesn’t need to produce your receipts in order to process your expenses, it doesn’t mean that you don’t need receipts. You Do. You will also need to save all your receipts for a period of 7 years; if you could not prove that an expense you claimed was legitimate HMR&C would force you to pay back any and all underpaid tax. Oh, and they may issue penalties for tax avoidance as well.
Umbrella companies are responsible for contractors’ tax affairs and therefore should have a solid accounting background. ContractorUmbrella is sister company to SJD Accountancy, the largest specialist accountancy firm in the UK, so you can be sure that any advice given can be trusted.
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