Can I still claim legitimate expenses as an employee?
Since the 2015 Finance Act came into force on 6 April 2016 the types of expenses contractors can claim have been restricted. This means that you need to understand what expenses you can claim and what set-up works best for you.
The first thing you need to be aware of is that to claim expenses through an Umbrella company like Pendragon Consultancy you must not be subject to ‘supervision, direction or control’ (SDC). If this is the case then you can claim back fixed allowable expenses.
What is a Fixed Expense?
In its simplest term, fixed expenses are costs/expenditure that is certain to be claimed each week/month wholly, exclusively and necessarily in the performance of the duties of the employment. As the level of expense is known each month – the expense value to be claimed is therefore fixed. Your expenses must be predetermined at the start of your assignment in the form of a budgeted expense.The budget needs careful consideration because if you pitch the expenses too high and do not incur the cost you may under claim the expense, which will be left in a pot. Once a budget is fixed it cannot be altered until there is a change to the assignment. All fixed expense budgets return to zero at the beginning of a new tax year in a similar way in which mileage claim expenses work.
Let’s check what you need to consider
- I understand that I must undertake and pass an SDC assessment?
- I fully understand the fixed expense model?
- I understand what happens if I do not work consistent hours on a regular basis?
- I understand what happens if my expenses are not what I provided at the start?
- I understand what happens if I over claim or under claim?
- I understand that once a salary is agreed it cannot be amended? (subject to change of assignment)
- I understand that once the expenses have been agreed they cannot be amended?
Have I passed SDC?
If Yes, then fixed expenses are for you.
Your salary is not variable when using the fixed expense solution and is neither reduced nor increased if no expenses are claimed for a pay period. The fixed expense solution is ideal for employees which do not fall under SDC and are on £30 per hour or above and who work regular weekly or monthly hours over a period not less than 3 months. Those on variable adhoc hours will find that this solution is not suitable
Example: The invoice rate given, is £30 p/h
By opting for the fixed expense solution, Pendragon Consultancy will ask what expenses you expect to incur. From this we will then provide a salary. Let’s say you expect to incur and subsequently claim £5 worth of expenses. £5 of the £30 invoice rate becomes your expense pot.
You must claim the agreed amount of ‘fixed’ expenses. Legislation dictates that any unclaimed/non-incurred expenses will remain with Pendragon Consultancy as the employer.
You are able to claim tax relief for your work expenses via a form P87 in certain circumstances, if you are an employee and you have spent your own money on allowable employment expenses (which are not then reimbursed by your employer) and your allowable employment expenses are less than £2,500 for the tax year.
Pendragon Consultancy takes its’ role as the employer seriously and will only operate within HMRC regulations.