As an umbrella employee, there are instances in which you may be able to enjoy tax relief on the cost of travel and subsistence. However, the changes announced in 2016 means that the rules now work a little differently.
As these changes caused some confusion amongst contractors, our guide is here to explain whether you’re entitled to tax relief and how you can claim.
What is travel and subsistence?
Travel and subsistence expenses relate to the costs incurred during business travel, accommodation and meals. Since subsistence is considered as a cost associated with business-related travel, it is treated in the same category.
You can see a full list of allowable expenses from HMRC.
Claiming travel and subsistence expenses as an umbrella employee
HMRC changed the rules because they believed that umbrella employers were treating their contractors in the same manner as full-time employees. Since employees can’t claim expenses, this was deemed unfair.
The rules dictate that in order for you to enjoy tax relief, your contract cannot fall under the SDC banner - you will need to assess whether your assignment falls under supervision, direction or control. HMRC will automatically classify every umbrella contractor under SDC unless you can provide evidence otherwise.
What is SDC?
HMRC’s SDC test is used to determine employment status and the definitions below should serve as a guideline:
Whereby someone overseas another person’s work to ensure that it’s being done to the agreed standards.
Whereby someone makes another person do their work in a certain way by providing instructions, guidance and/or advice.
Whereby someone can tell a worker how they do the work. This also includes the power to move the worker from task to task.
If you’re still unsure, you can find more details in our guide to SDC.
Refers to your travel and subsistence expenses
Refers to supervision, direction or control (or the right of in the manner in which you perform your work)
National Insurance Contributions
What expenses can I claim for?
If you’re unsure what you can claim as an umbrella company, consult our table below:
|Type of expense||If SDC applies||If SDC does not apply|
|Client billable expenses – Expenses that the agency or end client has agreed to pay to cover the costs incurred on their behalf||Tax and National Insurance contributions paid free by Parasol (excludes ordinary commuting to and from home)||Tax and NIC paid to you free by Parasol|
|Business costs – Electronic equipment, training, manuals and textbooks, parking, etc.||Tax and NIC paid to you free by Parasol||Tax and NIC paid to you free by Parasol|
|Mileage allowance – Cars, bicycles, motorbikes and vans||Not paid to you by Parasol, but log for your records on MyParasol portal||Tax and NIC paid to you free by Parasol|
|Business expenses – Entertaining and travel, subsistence, accommodation, safety equipment, stationary etc.||These won’t be paid to you by Parasol, but you can log them on the MyParasol portal and apply for a tax refund from HMRC after the tax year end (5th April) with the information that Parasol will provide, as long as you’re still employed by us.||These won’t be paid to you by Parasol, but you can log them on the MyParasol portal and apply for a tax refund from HMRC after the tax year end (5th April) with the information that Parasol will provide, as long as you’re still employed by us.|
Should I go limited?
Since the changes to SDC, many contractors have been questioning whether they should continue contracting under an umbrella or whether they could enjoy greater tax efficiencies contracting through their own limited company.
While limited company contractors generally take home more than umbrella employees, they have a greater set of responsibilities when it comes to their finances. And though it’s true that they can enjoy greater tax efficiencies, they may also face greater liabilities.
If you’re considering making the switch, you can find more about the differences between limited and umbrella in our guide.
Help from Parasol
No matter what your SDC status, we have a solution that works for you. For more information, simply contact our Best Advice team on 0800 084 6898.