Contractor Expenses using an Umbrella Company

How do umbrella company expenses work?

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. 

As a contractor working through an umbrella company you will have chargeable and non-chargeable expenses. Chargeable expenses are costs that your end client has agreed to reimburse to you. Whereas non-chargeable expenses are costs that your end client will not reimburse, but can be claimed as tax deductible expenses through your umbrella company. But what is classed as a valid business expense?

What costs can I claim as an expense?

Below are some examples of costs that could be classed as expenses if they are incurred wholly and exclusively for business purposes. 

Special Note: In the March 2015 budget the government announced plans to clampdown on travel and subsistence expenses. For more information on these proposed changes, please visit the following page: Changes to travel and subsistence expenses.

The information outlined below is intended as a guide only and we always recommend speaking to your accountant for specific information based on your circumstances. 

Travel 

Travel that has been incurred solely for business purposes can be claimed as a business expense. If you were to travel by public transport you can expense the cost of your ticket and if you travel in your own vehicle you can claim a rate per mile to cover fuel and any wear and tear on your vehicle. You are also able to claim for parking and congestion charges.

Accommodation and meal allowances

Reasonable hotel costs can be claimed as a business expense on occasions where you are required to stay away from your home overnight for work purposes. In this situation you would also be able to claim reasonable meal costs as a business expense, but only if you are staying away from home, not on a regular working day.

Equipment

If your work or business requires specialist equipment or software that will be used wholly and exclusively for business purposes then the cost can be claimed as an expense.

Uniform

Clothing that could be used for both business and personal use such as a business suit cannot be claimed as a business expense, because even if you only wear it for work purposes. However, if you are required to wear branded uniform or protective clothing for work, this would be an exception because the cost is solely for business and so could be classed as an expense.

Training

As long as the training course in question is wholly and exclusively for business purposes then the cost can be claimed as a business expense. An example of this would be if your client has requested that you learn a particular skill for your contract.

Do I need to keep my receipts?

You must keep receipts for all your expense claims as HM Revenue and Customs (HMRC) could ask to see proof that you have actually incurred the expense. If HMRC were to ever investigate you they can go back as far as six years and so it is recommended that you keep your receipts for this length of time.

It is important to be aware that some umbrella companies may make false expense claims on your behalf so that you pay a lower amount of tax. Remember, if you can’t prove that the cost was actually incurred HMRC will view it as tax avoidance, and it is you, not the umbrella company that will be liable.

Our recommended Umbrella Company provider Parasol provide employment services to contractors who do not want to operate through a Limited company. If you have any questions about contracting through an umbrella company, or using Parasol, call 0800 470 1549 or email bestadvice@parasolgroup.co.uk for more information.

Depending on your contract you may find that you will benefit from operating through a Limited company. Read on for more information on contracting through a Limited company. 

Limited or umbrella?

The rules for claiming expenses vary between the two and Limited company contractors are able to claim on a wider range of expenses, which is one of the ways that they are able to work more tax efficiently. To find out more about the differences between Limited and umbrella companies visit our Limited company or PAYE umbrella page for more information. You may also find our Contractors Guide to Expenses useful.

For more information about expenses or if you are considering becoming a contractor and are unsure if Limited or umbrella is right for you, then please contact a member of our new business team on 01442 275789 or email jessica@sjdaccountancy.com.  

Click on the links below to read our other umbrella guides:

SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant face to face.
  • Money back service guarantee. All your Emails received by 4pm on any normal working day will be answered the same day. Should it be necessary to leave a telephone message it will be answered same day/following day latest or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee starting from £120 plus VAT per month. Check our packages for more detail.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com. Our new client services helpdesk is open Monday to Friday (8am to 6pm).

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

Form your own Limited company with SJD - our same day online company formation service includes company bank account set up, VAT/PAYE registration and advice on optimum share structure. 

You may also find the following pages, guides and case studies useful:

*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.