What should you be looking for from an umbrella company?

Umbrella companies cannot dictate what an individual can claim as expenses – only the Inland Revenue can do that. Some companies advertise a ‘special dispensation’ and imply that the expenses listed are those that you are entitled to claim, this is not the case. To claim a cost as an expense you must be able to prove that it is ‘wholly and exclusively incurred in carrying out the duties of the employment’. Basically, if you haven’t spent it you can’t claim it, if you can’t prove you spent it you can’t claim it and if you can’t prove that you incurred the cost because of the contract you can’t claim it.

A dispensation is purely a list of expenses that your umbrella company is not compelled to record on a P11D. Normally when expenses are paid to an employee a Company is required to complete a P11D. A dispensation means this is not necessary for umbrella companies for those expenses which it covers. All umbrella companies have dispensations.

Still within the thorny subject of expenses – you must therefore obtain a receipt for any and every expense that you claim. If you claim an expense and you cannot prove that you have incurred the cost an Inland Revenue investigation would result in you having to pay the underpaid tax; if the Inland Revenue considered that you were trying to avoid paying tax by falsifying expense claims you could also be fined. Any umbrella company that claims that you are protected from Inland Revenue investigation is lying – it is a simple as that!

All umbrella companies will advertise that they are IR35 compliant simply because the legislation becomes irrelevant as you have no option but to be paid via PAYE. However, the Inland Revenue will never ‘approve’ an umbrella company or their expenses policy and you should be wary of any company that makes such a claim.