Prior to April 2016, umbrella employees were able to take advantage of a range of expenses to reduce their tax bill. However, HMRC deemed that too many contractors were claiming expenses when in fact there were operating similarly to a permanent employee – who were unable to claim for travel or subsistence costs. The legislation was introduced to stop complaint umbrella companies being able to process non-chargeable expenses (for tax relief purposes) if the contractor was subject to Supervision, Direction or Control (SDC).
The definition for Supervision, Direction and Control (SDC) are:
- Supervision – someone is overseeing the work to ensure it is completed to the required standard. It is also considered supervision if someone if helping you to develop your skills and knowledge set.
- Direction – someone is giving guidance as to how the work should be carried out. This also includes coordinating the work or the project as a whole.
- Control – someone is dictating what work needs to be done and how it should be carried out. It also includes having the ability to move the contractor from one job to another.
Umbrella Company UK does not allow travel and subsistence expense relief as it is unlikely that any contractor or freelancer is not subject to SDC and almost always fail the mobile worker test.
Reimbursed expenses are tax-free allowable business expenses. The expense has to satisfy HMRC’s criteria for it to be allowable for tax purposes; otherwise, the reimbursement is treated as additional taxable income.
For example, mobile workers who are required to travel away from their main place of work for work purposes are able to claim travel and subsistence expenses. This is comparable to the expenses that permanent employees are able to claim if they are required to travel to different locations for work.
Reimbursed expenses must be approved and paid by your end client or recruitment agency and will only be paid to you via your umbrella company once they have received the funds.