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Anyone who works as a contractor will know that there are certain things that they can claim as expenses, but if you choose to work through an umbrella company then your expenses will fall under one of two categories: Client billable or Business costs and expenses.
Client billable expenses are the costs which you incur in the course of your business that the end client or agency agree to reimburse you for. Business costs and expenses are costs which you have incurred whilst working on an assignment, but which aren’t reimbursed to you by the client or agency.
To claim either of these expenses, they need to be submitted to the umbrella company for checking.
Business costs are utilised to offset your Tax and National insurance contributions. Business expenses are recorded for submission to HMRC at the end of the tax year. Client billable expenses are reimbursed in full for any outlaid costs agreed upfront.
Yes – You should always keep receipts for any expenses that you wish to claim. These should be kept for a minimum of 6 years in line with the tax year as HMRC can audit any expense claim at any time. Receipts will be required by most umbrella companies.
If you are investigated and cannot show receipts or any other proof of your expenses, then you could be required to pay back any tax owed. You could even be charged with tax evasion, so it’s worth keeping all your receipts in order to avoid either paying too much tax or risking the consequences of claiming unprovable expenses.
Supervision, Direction and Control (SDC) determines what expenses can be claimed within Business costs and expense claims. Dependent upon your SDC status you can claim the following business costs; mileage, car parking, electronic equipment and professional development relating to the assignment.
You can log all other business expenses such as; other travel and car hire, accommodation, subsistence, stationary, call costs, safety equipment, professional subscriptions, business entertainment and postage. These will need to be submitted to HMRC via a P87/SATR at the end of the tax year.
If a contract lasts for less than 24 months, it is considered a temporary workplace by HMRC and you can claim related expenses for this assignment. If a contractor is aware that their contract is going to last longer than 24 months, from the moment they become aware, expenses are no longer claimable.
Claiming legitimate expenses is allowed under HMRC regulations, but any deductions for money that you have not spent or costs you have not incurred would be considered tax evasion by HMRC. You should make sure you keep receipts for any expenses you wish to claim and if you have any questions, then your umbrella company should be able to offer you advice and help you to ensure that you are doing everything according to HMRC guidelines.
For more information and advice on choosing the right option for you, complete the form below and one of our Best Advice Team will call you to discuss your unique requirements. Our expert accountants are also on hand to offer all of the advice and support you need over the phone, call 01253 843184.