Umbrella company expenses to be disallowable in 2016

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January 28, 2016
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As Budgets go last year’s wasn’t too kind on the self-employed, the bad and the ugly outweighing the good that came from Osborne’s speech. We saw tinkering to dividend structure, Employment Allowance and IR35 – but without doubt the biggest bombshell came in the proposals for contractor expenses.

Come April 2016, many umbrella company contractors face big changes to what they can expense. So what is exactly is on the horizon? And how can these contractors prepare?

Travel expense turmoil

Umbrella companies have been in the government’s cross hairs for some time, and back in March they took things up a notch with a direct attack on umbrella contractors. Reading through the finer details in the 2015 Budget it states:

“Autumn Statement 2015 announced that the government would review the growing use of overarching contracts of employment that allow some temporary workers and their employers to benefit from tax relief for home-to-work travel expenses, relief not generally available to other workers.

“This is unfair. As a result of the review, the government will change the rules to restrict travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.

“This will take effect from April 2016 following a consultation on the detail of the changes. It will level the playing field between employment businesses that seek to lower their costs by using these arrangements and those that do not.”

Essentially then, the Treasury wants to restrict umbrella company contractors ability to claim travel and subsistence expenses– so long as they’re ‘under the supervision, direction or control’ of a client.

To make matters worse a consultation on these changes has taken now place but its impact has been negligible, and within the next few months the legislation will be enforced in the form Osborne intended.

So what exactly does this mean in practice?

As things stand, an umbrella company contractor can claim a business expense on their daily travel back and forth a client’s workplace. Come April 6th, however, and this expense will be disallowed. Expensing the travel costs of a one-off business meeting will still be allowable though.

A big change, this switch could damage your profitability as an umbrella contractor. So what can you do to counter its impact?

The options

Limited company contractors operating outside IR35 won’t be affected by the changes, so going limited could be an option if you can confidently prove your status outside. Fall within IR35, however, and as a limited company contactor it’ll be much of the same – your ability to claim travel and subsistence expenses will be severely hampered.

The best way to approach this then is to look at your circumstances, and to also consider your individual preferences. Whilst operating as limited company may bring you more paperwork, it could make your contracting more profitable. Just make sure you weigh up the relative pros and cons, and understand IR35 before you switch.

Umbrella company contractor unsure about your next step? We’re on hand to help on 0161 669 4221 or info@biaaccountancy.com

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