How does an umbrella company dispensation affect me as a contractor?

How does an umbrella company dispensation affect me as a contractor?

The quick answer is that it doesn’t in the slightest and has no impact on your take-home…

Any company that repays business expenses to its employees has to account for how that money is spent and how the associated VAT has been dealt with. The usual way to do this is via some kind of proof of purchase, usually in the form of a VAT receipt or payment slip. This provides the necessary audit trail should HMRC challenge any particular item of expenditure.

However, managing and copying those receipts for even a fairly modest workforce can become a headache. To save everyone’s time and effort, companies can apply to HMRC for a dispensation to stop having to supply copies of receipts to support their P11D submission. Instead they undertake to verify all claims made and certify that the figures they supply to HMRC at year end are accurate and supportable and have been verified.

So how does that help the umbrella user with their expenses?

Actually it doesn’t make the slightest difference. The dispensation often quoted by Umbrella companies applies to their dealings with HMRC, not yours. They may decide to take your expenses at face value and not insist on seeing receipts to support your claim, but there still needs to be an audit trail. If an investigation in to an umbrellas P11D return is launched, HMRC may well be asking you to prove your claims and if you are seen to have claimed for things you should not have, then it will be you facing the penalties. As a result you are required not only to ensure your claims are correct but that you retain the proof, for up to six years.

The umbrella may use the “no receipts required” line to sell their services, but the reality is that it is entirely irrelevant to you. HMRC recognise this and in 2008 launched a crackdown on Umbrella Company dispensations, threatening to remove any that it found to have broken the rules. This was a serious threat and umbrellas have largely stopped stressing their Dispensations and “HMRC Approval” (another irrelevant myth) as a direct result.

Remember always that if the Umbrella gets it wrong, it’s you who has to pay the bill.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Pic of the Day by Kenneth Hynek

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