It has been claimed that contractors working through umbrella companies are able to make a claim for non-chargeable expenses as an employee such as travel and subsistence, meals and protective clothing.

However, these are not refundable through the client or agency as they were not incurred on their behalf and therefore your umbrella company will process your claim as a tax benefit, reducing the amount of income that is liable to tax. Many contractors commonly believe that they receive the whole of the non-chargeable expense as a lump sum but this is a common misconception as the amount of expense claimed is used to reduce the amount of income which is subject to tax.

A word of caution may be necessary as the expenses you are allowed to claim are governed by HM Revenue & Customs and not decided by the company providing your umbrella services. The expenses you claim must have been incurred

“wholly, necessarily and exclusively in performing their duties.”

HM Revenue & Customs is permitted to investigate any expense claims made within the last six years and therefore receipts for all expenses should be retained in case of investigation. Claims for expenses should not be viewed as a way to avoid the payment of tax.

Chargeable expenses will continue to be agreed with the client in advance of the undertaking of duties and added to your invoice, meaning that you receive the full value of your claim.

This is a stark reminder to ensure your claims for expenses are legitimate as only HMRC governs what is allowable as an expense. You should beware of any umbrella company that claims they can increase your take home pay significantly more than any other umbrella company. The only difference between one umbrella company and another is the fee you pay and the service levels.