The end of the tax year always ensures that expense claims come under the spotlight. We therefore thought that it would be worthwhile revisiting the rules of claiming expenses, what a HMRC dispensation agreement means and why Travel and Subsistence (T&S) dispensation is not objectionable, but rather it’s the abuse that is enacted in its name that is.
Over a series of posts we will provide you with the lowdown on T&S dispensation, starting with what it is and what this means to contractors and agencies alike.
An employee /contractor is allowed to claim back legitimate expenses that they have incurred in the performance of their duties. Normally, a receipt should be supplied to substantiate the claims being made.
The person claiming the expense has to be an employee (for temporary workers and contractors this would mean working for an umbrella company), they should not have a permanent workplace and importantly, the expenses need to be legitimate.
Through HMRC dispensation, to make the process of recording these expenses less bureaucratic, employers can record what travel and subsistence expenses have been claimed without having to obtain a receipt for each one. The employee’s annual P11D form is used to record the T&S expense amount that has been claimed.
The critical factor about this dispensation is that that it is merely an agreement between the umbrella company and HMRC on how the expense claims are reported. Nothing else.
T&S dispensation does not mean that the contractor, either by their own volition or on instruction from their umbrella company, can claim for lots of expenses without receipts. Nor is it a loophole to provide contractors with a way to make more money. And, every receipt should be retained by the employee (temp worker / contractor) because Revenue could, and do, check with individuals to confirm whether expenses are legitimate. Note the absence of ‘umbrella company’ in that sentence? That’s because it is the employee or contractor who will be audited by HMRC and not the umbrella company and ultimately be liable for any underpaid tax.
T&S dispensation is often a way an umbrella company markets itself, offering better take-home pay to potential contractors. Equally, this dispensation is attractive to agencies because contractors employed by umbrella companies that have dispensation can be cheaper than those who don’t. For many umbrella companies struggling with profit margins, operating a T&S scheme can reduce operating costs, especially if the reductions in tax and National Insurance contributions are not passed on to the contractors. These so called ‘benefits’ come as a result of the number of issues and misuse that arise in relation to the use of travel and subsistence dispensation – but more of that in later posts.
The reality is that all umbrella companies use the same PAYE calculations to determine how much tax should be paid, and legitimate travel and subsistence expense claims are allowed for all employees that fit HMRC’s criteria. And should HMRC decide that expenses have been incorrectly claimed, the blame and the repercussions rests squarely at the feet of the contractor who made the erroneous claims or were seduced by an umbrella company to do so.
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