Although umbrella company contractors are employees of their chosen providers, they can still claim back tax relief on certain business expenses.
Many falsely believe that only limited company contractors, as self-employed workers, are able to claim back expenses, however, there are a number of costs that umbrella company contractors are able to claim back too.
This is just another advantage to operating through an umbrella company for contractors.
To help umbrella contractors understand exactly what they are able to expense, Umbrella Search has put together this complete guide to umbrella expenses so you can ensure you are getting the most out of umbrella contracting in 2023.
Billable expenses vs non-client billable expenses
As we have mentioned, it is not just self-employed contractors that benefit from being able to claim back legitimate business expenses. In fact, there are a number of expenses that umbrella contractors can claim for.
These must be legitimate business expenses that the contractor has incurred on the job. The contractor will not pay tax on the cost of these expenses.
When it comes to expenses for umbrella contractors, there are two types contractors must know about.
The first type of expense we will look at is a client billable expense. This is an expense that the contractor’s client has agreed to pay back to the contractor. These types of expenses are usually paid back in the contractor’s salary.
The other type of expense is a non-client billable expense. These are expenses that won't be paid back by the client but can instead be claimed as a tax-deductible cost by the contractor.
What expenses can umbrella contractors claim back?
There are a number of legitimate business expenses that contractors can claim tax relief back on.
- Equipment: if the contractor has to purchase any equipment or tools in order to carry out the contract at hand, these are considered a legitimate expense. Contractors must keep receipts or invoices for any purchases made.
- Uniform: if the contractor is required to purchase uniform to carry out the project then this also counts as a legitimate expense.
- Computer software or hardware: contractors are able to claim back tax relief on any computer hardware or software they have had to purchase for their work.
- Mileage: as contractors work in temporary workplaces, they are able to claim back the mileage they accumulate getting to work. Contractors are able to claim back 45p per mile for the first 10,000 miles traveled each year. This then changes to 25p per mile after the first 10,000 miles. If the contractor cycles to work then they are able to claim back 20p per mile. The contractor must log the date of their journeys, the reasons for travelling, where and to they have travelled from as well as the total mileage accumulated per journey.
- Work from home allowance: however, some contractors will be able to carry out the contract from home, especially post covid-19 pandemic. If this is the case, contractors can either claim £6 per week, or the exact amount of the costs they have accrued by working at home. Again, contractors must be able to provide evidence for this, including copies of bills and receipts. Find out more about claiming tax relief when working at home in this government guide.
- Business phone calls: contractors can claim back the cost for any phone calls they are required to make as part of their work.
- Training: contractors are able to claim back the costs of any training they have had to undertake for the contract at hand. As well as claiming back the cost of the training course or workshops they have attended, they can also claim back the cost of any books or manuals they had to buy for the training course.
- Subsistence: if the contractor has to travel for the contract, they can claim back the cost of accommodation and subsistence they incurred during their trip.
How to claim for expenses
In order to claim back expenses, umbrella contractors are required to keep a record of all relevant purchases. This is usually as simple as keeping hold of receipts or invoices you have been issued.
This is in case HMRC asks to see proof of the expenses that you are claiming tax relief on.
Claiming back expenses is relatively simple for umbrella contractors. Rather than claiming them through self-assessment like limited company contractors, umbrella contractors can simply inform the umbrella company of the expenses they have incurred. The umbrella company will then process these on the contractor’s behalf, ensuring that the correct tax relief is applied.
This is just another benefit of operating through an umbrella company for contractors and is yet another reason that this has become an increasingly popular avenue for contractors in 2023.
After reading our guide to contractor expenses, you might now find that this is the right time for you to make the move to umbrella company contracting. If this is the case for you, Umbrella Search can help you find the perfect provider for you this new year.
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