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Contractors who are working as umbrella employees may be surprised to learn that they can still claim expenses. Although the process works a little differently than if you were contracting through a limited company, it’s good news that there is still a number of costs you can claim.
Looking for more information around claiming business expenses as an umbrella employee? We put our guide together to provide all of the information you need, along with some of the most common costs.
A business expense is a cost that has been incurred wholly and exclusively for business purposes, and if claimed as an expense you will not pay tax on the cost.
If you are working under an umbrella company, the level of reimbursement to you depends on whether the expense was chargeable or non-chargeable.
Client billable expenses are expenses that your end client has agreed to reimburse.
Expenses claims which have been approved are paid with your wages, whether this is a daily, weekly or monthly expense.
These are costs that your end client will not reimburse but can be claimed as tax-deductible expenses through your umbrella company. What you can claim will depend on whether or not Supervision, Direction or Control (SDC) applies to the assignment.
As of 2016, the rules changed meaning that only employees who did not meet the assessment criteria for the government’s initiative ‘Supervision, Direction or Control’ (SDC) were free to claim certain business expenses.
HMRC’s definitions for SDC are as follows:
If someone is overseeing a person doing work to ensure that the person is doing the work they are required to do and it is being done correctly to the required standard.
If someone is making a person do his/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done.
If someone is dictating where what and how someone does their work. This also includes if someone has the power and authority to move a person from job to job.
An umbrella employee will usually determine whether your working practices are likely to fall under SDC before you carry out the contract. If you are required to take an assessment, your employer will usually ask questions about your working arrangements and your level of responsibility.
Below are some examples of costs which could be considered legitimate business expenses if they are wholly and exclusively for the purpose of your work.
If your contract is not subject to SDC you can claim mileage, provided the workplace is considered temporary.
The current rates of travel expenses are as follows:
Mode of transport
First 10,000 business miles per year
Above 10,000 business miles per year
Cars and vans
You can find more information in our guide to travel expenses for umbrella employees.
If your job requires a specific set of tools or equipment to complete your job, you’re eligible to claim the amount back. However, it’s important to note that this will be the property of the end client and not the employee.
As long as the training is relevant to your work and the cost is wholly and exclusively for the purpose of your business, you would be entitled to claim for the cost of training expenses. You can also claim for the costs of any textbooks and manuals.
You must keep receipts for all your expense claims as HRMC could ask to see proof that you have actually incurred the expense. If HMRC were to ever to investigate you they can go back as far as six years, so it is recommended that you keep your receipts for this length of time.
Depending on your contract you may find that you will benefit from operating through a limited company rather than an umbrella solution. You can find more information about contracting through your own limited company in our guide.
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Appointing an accountant can save you time and stress when starting up on your own. If you would like to speak to someone about any of the above information or any other queries you may have, arrange a callback and a member of the team will be in touch.