umbrella, expenses

Umbrella Company Expenses to a Temporary Short Term Assignment

16 December 2014

The Chancellor included Umbrella Companies in his Autumn Statement after what seemed to be as a result of a campaign from UCATT and other Trade Unions criticising Umbrella Companies.

We believe this criticism from UCATT was completely unfounded as they were angry that their members could no longer be paid through the Construction Industry Scheme (CIS) and that SOME umbrella companies transferred large numbers of the workers they paid visa CIS into an Umbrella Company.

UCATT have targeted the difference in treatment of Employers national Insurance costs between umbrella and PAYE but miss the point that agencies generally pass on their National Insurance saving by paying a higher pay rate to umbrella employees.  The UCATT member should then be free to choose which option they prefer.

At Umbrella (like at most umbrella companies tarred by the same brush) we paid very few contractors via CIS and when the new rules changed regarding disguised self-employment there was no wholescale transfer from CIS to Umbrella. In fact the handful of former CIS workers we had chose to be paid PAYE through their recruitment agency.

The reason their take home pay is now less is because of the Legislation change. UCATT should focus on that and not Umbrella Companies.

At Umbrella we also feel that the targeting of contractor expenses is also unfounded and hope that the opportunity given by the Chancellor to discuss this issue will resolve that the small benefit contractors currently gain from travelling to temporary assignments is maintained.

Contractors travel the length and breadth of the UK to meet a short term need for their services and in doing so offer a huge service to the UK economy. They don’t have the luxury of choosing an employer that is necessarily local to them or indeed choosing a home to be near their employer.

If the Chancellor targeted travelling expenses then the contractors most hurt by this would be the ones who travel 100s of miles each week to meet this need (because the further they travel the bigger their claim and hence the bigger the benefit).

If you disallowed this then would you also disallow the hotel bills of the people who decide that the distance is too far to travel daily? Contractors might then be forced to only take local assignments?

It is unfair to say that permanent employees at the same site don’t benefit from this because the majority of permanent employees will have relatively short journeys each day. They also have the security and long term earnings that their permanent position offers. If they were asked to visit a client or other company office then they would be reimbursed for this journey tax free.

At Umbrella we decided to analyse our expense claims to prove this fact and found the following:

  • 53% claim no mileage at all. There is therefore no abuse of this allowance.
  • Of the people who claim mileage 68.1% travel over 20 miles per day and account for 89.2% of all mileage claimed.
  • Of the people who claim mileage 36.5% travel over 40 miles per day and account for 62.8% of all mileage claimed.

Therefore it can be seen that:

  • It’s the people who travel the large distances who make up the majority of expenses paid.
  • The distance travelled means it is not the same as travelling to a permanent workplace and they aren’t comparable to the permanent employees working at the same site.
  • Any change would affect these people the most.
  • Contractors are only claiming relief for valid expenses.

At Umbrella we verify journey distances, claim amounts and require receipts to prove that sufficient petrol has been purchased as evidence that the journey was made in their own car.

Umbrella Director, Miles Grady BA Econ (Hons) ACA, says:

“Our analysis confirms the belief that the expenses paid to flexible workers are genuine expenses paid attending a temporary workplace. The fact that over 62% of claims paid relate to workers having to travel extremely long daily journeys means there can be no argument that the place visited would ever be considered their permanent place of employment. For instance if a contractors is asked to travel from say Birmingham to Bristol. A comparable permanent employee would live near Bristol. If they were from the Birmingham Office travelling to the Bristol Office they would get paid mileage tax free. This is the true comparison to a contractor’s position. It would be completely incorrect for the tax relief on the reimbursement of this cost to be disallowed”.

Umbrella.co.uk are contactable on 0800 121 6513.