Since 6th April 2016, Supervision Direction and Control (SDC) has restricted the expense claims – such as travel and subsistence – that contractors working through an umbrella company are allowed to claim. Our blog explains what SDC is and how it may impact you.
SDC rules were put in place to ensure that contractors operating similarly to permanent employees (i.e. subject to SDC) are not able to receive tax relief on expenses incurred during work.
As a rule, tax relief is not available for home-to-work travel or for those in permanent employment – and neither are subsistence related expenses. Expenses such as these can only be reimbursed by the employee, and as of April 2016, this rule also applies to contractors operating through an umbrella company. However there are instances where this rule can be void or modified, such as if the workplace is classed as a temporary place of work and the travel to said workplace is not considered ‘commuting’ or part of standard travel to work.
HMRC defines Supervision, Direction and Control as follows:
- Supervision – the worker is overseen by someone else who is ensuring the work is being done to the required standards
- Direction – someone is instructing or directing the worker in their work; this can be through guidance or advice
- Control – the worker is dictating to the worker where, what and how they do their work; this includes someone having the authority and power to move the worker from job to job, or task to task
What can I claim under travel expenses?
Most umbrella companies do not allow for travel expenses to be claimed for tax relief if the worker is not subject to SDC. This is because most contractors will fail the ‘mobile worker test’ that indicates whether a worker is subject to SDC or not. However, in the case where the umbrella company allows travel expenses to be claimed, these are the types of expenses that will be accepted:
- Any journey that is not the normal commute, and that is required to or from a site
- Travel that is required to complete the job role that is not home-to-work travel
- Travel from your home to a temporary workplace
If you would like further clarification on this, please visit HMRC’s official website.
Most umbrella contractors will only be able to claim expenses when their end-client and agency has agreed to reimburse them. This needs to also be discussed with the umbrella company who will outline the process for claiming reimbursed expenses.
What is Subsistence?
Subsistence refers to costs that you may incur when you are on a business trip. These can include:
The same rules apply to subsistence expenses where umbrella contractors are within SDC rules. If your end-client or agency agrees to reimburse any of the above expenses, the exact limits should be discussed and agreed in advance to starting the contract. They should also fall in-line with HMRC guidelines.
How can I determine my SDC status?
Any reputable and compliant umbrella company can explain SDC to you and help you determine whether the rules apply to you. However most contractors needing to work through an umbrella company fail the mobile worker test as mentioned above, and only a few true mobile workers pass and are able to claim expenses for tax relief. Regardless, we can offer you support in claiming expenses that your agency and end-client agree to reimburse.
Any mobile worker assessment you do will ask you to answer questions about your work environment and responsibilities. If you pass the test, you will complete an additional questionnaire that will ensure you do are not trying to avoid tax.
Have reimburseable expenses to claim through Umbrella Company UK? Visit our expenses declaration form.
What are the benefits of using an umbrella company?
Since the SDC rules came into effect in April 2016, umbrella companies are a less attractive option to those contractors who are able to operate a limited company. However using an umbrella company is still by far the easiest way to get paid as a contractor, and there are still many benefits to be had:
- Minimal administration – Umbrella Company UK will handle 99% of the admin required including making your tax and NI payments to HMRC on your behalf – completely inline with HMRC regulations. All you need to do is complete your timesheets for hours worked, submit reimbursed expenses and forward copies to your agency. We’ll take care of the rest!
- Statutory Annual Leave, Sick Pay, Paternity and Maternity Pay – visit our FAQs page to find out more
- £25 million insurance cover including Employers’ Liability, Professional Indemnity and Public Liability
- Access to Umbrella Company UK Rewards – £1000’s in discounts at online and high street retailers
Contact us to find out more about our umbrella service and how you can register. We’ll also give you a free take home pay calculation comparing umbrella and limited company options.
Please note: all umbrella companies should produce virtually the same take home pay – anyone offering over 80% will not be compliant. The only real difference will be the margin charged by the umbrella for administering your pay. Contact us for more information on this.