Many freelance workers and contractors do not want to spend time and money on the administrative and legal work associated with setting up a formal partnership or a limited company, and increasingly they are turning to umbrella companies to take on the burden of this work. This is a good way to ensure full compliance with the legal requirements of operating a business without the need to do any of the paperwork, and an umbrella company also has an added advantage – it can actually save the contractor money through reclaiming business expenses.
It is easy for someone to overlook what can be claimed, or to get it wrong and find the mistake has added to their tax liability. Expenses that are incurred legitimately, wholly and exclusively in the operation of the business can be reclaimed. The great thing is that the chosen umbrella company will do all the paperwork, as long as relevant receipts are supplied.
Travel and Accommodation
Going to and from a temporary place of work is a legitimate expense and there are different rates per mile for travel by car, motorbike or bicycle. Public transport costs and the London Congestion Charge can be reclaimed too, and car passengers are also entitled to a small allowance per mile.
Work that entails staying away from home, for example for training purposes or whilst travelling on business, is a legitimate expense and can be reclaimed. Make sure all relevant receipts are kept, and remember those that include VAT should also record the VAT number of the bed and breakfast establishment or hotel, if applicable.
Training, Equipment and Protective Clothing
The cost of any equipment that is necessary for a specific job can be claimed. Training can be a little more problematic as it must be proven to be absolutely necessary to a particular contract and so a general training course is unlikely to be eligible. The cost of necessary protective clothing can usually be reimbursed, although costs of alterations or cleaning will not be eligible. Items that can be worn outside the workplace ordinarily are not likely to qualify.
Eye tests and spectacles can be claimed where the work requires a contractor to use a PC. Professional subscriptions and incidental items may be eligible, depending on the circumstances.
If eligible expenses are claimed from the company for which the contractor is providing services, and paid to the umbrella company, these are called billable expenses. Depending on what they are, they will then be paid to the contractor after any adjustment for tax. The umbrella company will make the correct tax adjustment for the contractor, saving them yet another chore.
When contractors incur expenses that will not be paid by the company for which they are providing services, the expenses can still be claimed against tax liabilities. Once again the umbrella company will do all the necessary tax calculations, if applicable, on behalf of the contractor, and the correct amount payable will be reimbursed.
Courtesy of Crystalumbrella.com