Expenses Guide
These guidance notes summarise the types of expenses that may be claimed by a contractor in order to perform his/her duties of employment.
Entertaining Expenses | Business Entertaining
Expenses incurred in entertaining customers/clients may be claimed by a contractor for genuine business reasons.
This does not include entertaining employees of the same organisation, personal friends or business acquaintances where there is no business obligation to entertain them. A reimbursement of such expenses will only be made where details of the names of attendees, the organisation which they represent, the purpose of the entertainment and the venue at which the entertaining took place are provided, together with fully supporting receipts.
Flight and Associated Subsistence Costs
If a contractor first arrived in the UK within the last 5 years and is not domiciled in the UK then he/she can claim expenses incurred in respect of travel between the UK and their home country. This includes any costs of subsistence whilst undertaking that journey, including hotel costs (only those during transit to the said country or return to the UK). There is no limit for the number of journeys that may be claimed between the UK and the home country.
If immediate family travelled with a contractor, or indeed travelled to the UK, or returned there alone, the contractor may also claim for their travel and subsistence costs incurred including subsistence and any hotel accommodation during transit. He/she must advise the names, relationship and ages (children only) on claims made. Claims for travel and subsistence in respect of family members are restricted to two journeys each tax year.
Home Telephone
A contractor may claim the cost of all business calls on their home telephone bill. All claims must be supported by an itemised bill with the relevant numbers highlighted and details of the name of the customer/client and the purpose of the call. No claim can be made for any element of the telephone line rental charge.
Home Expenses
Home expenses allow a contractor to obtain tax relief for the extra household expenses incurred when working from home. Typically these will be the cost of gas and electricity. Under a ‘home working arrangement’ agreed with the umbrella a contractor need not work at home every day but there must be a pattern – for instance, if a contractor works 2 days at home and 3 days at the work premises. The work a contractor does at home must be work that you are required to do as part of your employment.
You can claim a flat rate currently of £4 for each week you have to work at home. If however you can demonstrate your extra expenses are higher than this amount, if you provide us with your calculations you can claim the higher amount.
Internet Subscription
Many employers are under the misconception that costs incurred by an employee can be reimbursed free of tax and NIC in respect of Internet access. HMRC treat reimbursement of Internet access as a taxable expense and therefore this cannot be claimed.
Mobile Telephone Costs
A contractor may claim the cost of all business calls made using their personal mobile telephone. All claims must be supported by an itemised bill with the relevant numbers highlighted and details of the name of the customer/client and the purpose of the call. No claim can be made for any element of the telephone line rental charge.
Relocation Expenses
Subject to certain conditions being satisfied a contractor may claim reimbursement for eligible relocation expenses. Broadly these include starting a new job, a change in employment duties or a change where duties are normally carried out. The expenses must be incurred before the last day of the tax year following that in which the relocation has occurred.
Qualifying expenses include:
• Expenses of disposal (legal and estate agent fees)
• Expenses of acquisition (legal and surveyor fees)
• Expenses of transporting belongings
• Travel and subsistence
• Bridging loan expenses
• Duplicate expenses (new for old items only where old do not ‘fit’).
A maximum of £8,000 of ‘qualifying expenses’ can be reimbursed free of tax and NIC. All expenses claimed must be supported by receipts.
Subsistence
A claim for subsistence can be made where a contractor is required to stay away from the normal place of employment. The general rule is that if the travel costs qualify as business travel then any subsistence costs are also allowable.
Daily Subsistence
An umbrella service may use the HMRC advisory system of benchmark scale rates of subsistence. The allowance is for when an expense has been incurred in circumstances where a meal is not provided with overnight accommodation or to individuals holding travelling appointments.
A contractor does not have to send receipts with the expense claim but they must retain them as the umbrella will typically conduct random checks to comply with HMRC requirements to be satisfied that the contractor is entitled to the scale rate payment and that he/she incurred an allowable expense.
The following allowances are typically paid:
Breakfast rate (irregular early starters only) – a rate of up to £5 where a contractor leaves home earlier than usual and before 6am and incurs a cost on breakfast taken away from his/her home. This will only be paid where a contractor does not regularly leave home before 6am.
One meal rate (five hour rate) – a rate of up to £5 where a contractor is away from his/her home/normal place of work for a period of at least five hours and has incurred a cost on a meal.
Two meal rate (ten hour rate) – a rate of up to £10 where a contractor is away from his/her home/normal place of work for a period of at least ten hours and has incurred a cost on a meal or meals.
Late evening rate (irregular late finishers only) – a rate of up to £15 is paid where a contractor has to work later than usual, finishing work after 8pm having worked a normal day and has to buy a meal which would usually be had at home.
If a contractor is paid an allowance under the five or ten hour rule, the late meal allowance could still be paid if he/she finishes work after 8pm and buys a meal that would usually be had at home. However, if a contractor regularly finishes work late ie they normally work afternoon or evening shifts no late evening meal rate can be paid.
If a higher amount is paid the excess must be paid subject to tax and NIC.
Receipts must be retained showing the items purchased. If a contractor spends less he/she can only claim the actual amount paid.
Overnight Subsistence
Costs for accommodation can be claimed where a contractor is required to stay away from home whilst on business as daily travel is inappropriate due to distance.
As a guide maximum amounts for accommodation may be claimed as follows:
Bed & Breakfast Allowance:
London – £100
Outside London – £80
Staying with friends/relatives – £25*
*Where a contractor claims for staying with friends/relatives, this replaces the Bed & Breakfast allowance. A contractor should provide a receipt or similar confirmation, such as a letter, confirming the expense has been
incurred.
Where a contractor is required to stay away from the normal place of employment it is possible he/she may incur additional “overnight incidental” personal expenses, whilst staying in a hotel, such as telephone calls home, laundry, newspaper, mini bar etc.
A contractor can claim for these ‘Overnight Incidental Expenses’ of up to £5 per night for stays in the UK and up to £10 for each night, any part of which is spent outside the UK.
Sundry Expenses
If a contractor incurs any other expenses, such as office supplies, postage, stationery for business purposes, he/she may claim reasonable costs.
Travel Expenses
All travel expenses by any mode of travel can be claimed for business journeys. If a contractor is on a contract of less than 24 months, details of all travel costs to the client’s premises or temporary place of work are typically submitted to the umbrella service. Claims for travel by rail/air/sea/river/tram/ metro/underground/ taxi and bus must be supported by the relevant ticket/receipt.
Claims for ordinary commuting or private travel will not be reimbursed. Where an Oyster card is used a contractor must work out the cost for each journey and claim this amount only – no round sum amounts for ‘topping up’ a card will be authorised. The completed claim form must show where the journey(s) commenced and finished.
The use of travel cards should be restricted to daily or weekly and used only for business travel. A contractor can claim the costs of using his/her own car, motorcycle or bicycle on business journeys. Mileage allowances can be claimed for business journeys as set out below. Costs in respect of business miles only will be paid and in order to demonstrate that mileage allowances claimed are for business travel a comprehensive mileage log must be kept and produced together with each claim.
The following rates apply:
Motor
You can claim 45 pence for the first 10,000 business miles travelled each year (2011/12) and 25 pence thereafter.
Motorcycle
You can claim 24 pence for each business mile travelled each year.
Bicycle
You can claim 20 pence for each business mile travelled each year.
Passenger Allowance
If a contractor carries fellow workers in his/her car on journeys that are also business journeys for them he/she may claim an additional 5p per mile.
A contractor can also claim for car parking, toll charges and congestion charges incurred whilst on business journeys. No claims will be authorised for parking fines or congestion charge penalties or any other traffic violations charges or penalties.
VDU Eye Tests/Spectacles
If a contractor is required to use VDU equipment he/she may claim the cost of the examination (eye) test. Reasonable costs are typically reimbursed where the examination shows that a contractor requires corrective appliances with specific prescription to use for screen equipment. Where no corrective appliance is required the cost of the examination only can still be claimed.
Work-related Training
If a contractor has incurred costs on work-related training courses he/she will need to provide details of the costs incurred, including any costs of travel, learning materials, and examination and registration fees. Subject to the expenses being ‘work-related training expenses’ a contractor may claim reimbursement of such costs. HMRC require the training to “impact, instill, improve or reinforce any knowledge, skills or personal
qualities” which are likely to prove useful when performing his/her duties of employment or will better qualify him/her to perform those duties or participate in any charitable or voluntary activities arising through the employment.
Travelling expenses and subsistence related to the course are typically also paid within reason. Any such travel and the total time spent in the course and travelling for each respective day should be recorded and submitted to the umbrella services.
Typically, the umbrella service will review the circumstances of the training undertaken and reimburse the costs if this can be regarded as work-related training within HMRC guidelines. HMRC site on subject.
