Easter saw HMRC publish a paper which attempts to deal with standard expense levels for food & drink (subsistence) when working on temporary assignments (contracting). This “quiet” release has not made the headlines as yet as a) it is not exactly draconian (and therefore anti economy) and b) does not entirely effect people from day one.
It does however mean that an employer (umbrella company) without a dispensation can choose to use a set rate of expenses for “subsistence”. It also probably means that a new umbrella company might have a harder time applying for a dispensation. To gain a dispensation the employer should carry out detailed sampling of expenses to prove to HMRC that expense levels are accurate and genuine (in simple terms). The new benchmark rates published mean that this does not need to be carried out and a standard fixed rate can be used (but with some tougher caveats).
- the travel must be in the performance of an employee’s duties or to a temporary place of work
- the employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours
- the employee should have incurred a cost on a meal (food and drink) after starting the journey
I also interpret the above as a way of HMRC being able to check for patterns in employees claiming of expenses, will someone claiming lunch every day of the week for three months relate to point 1? Is the travel necessary (and therefore the expense) or is it simply commuting as any employee would do?
A welcome change is the removal of “Friends & Family” Allowance in new dispensations and is also not included in these new rates. Being able to claim for staying at a friends or family whilst contracting has in my opinion, been widely abused and therefore HMRC have acted to remove it, “HMRC has reviewed this policy and concluded that there is no legal basis for giving tax relief because it is not linked to any specific underlying expense.”
Umbrella Companies with existing dispensations will be affected by these changes but only at the point in which they are reviewed. This therefore relates to my earlier point in that not everyone will be affected from day one (which by the way was 6th April 2009) as dispensations are usually reviewed on a 3 – 5 year cycle. Parasol contractors for instance won’t be affected and even when our own dispensation is up for review, we are still able to apply for a renewal. We have a near 10 year track record of being an employer with a true employment model and exacting expense management/audit processes.
So… who wins? HMRC I guess will be able to suggest this route rather than allowing dispensations and less expense abuse should occur. Some genuine Contractors will lose out in terms of take home pay if they use a “cheap” solution that adopts this scale rate approach. It’s not yet creating a level playing field (you still see expense dispensations promoted as sales tools) but probably is a start on the groundwork.
by Rob Crossland
HMRC Slip Expense changes in….
April 15, 2009 in Business Expenses, Contractor News, Industry comment, Tax
Easter saw HMRC publish a paper which attempts to deal with standard expense levels for food & drink (subsistence) when working on temporary assignments (contracting). This “quiet” release has not made the headlines as yet as a) it is not exactly draconian (and therefore anti economy) and b) does not entirely effect people from day one.
It does however mean that an employer (umbrella company) without a dispensation can choose to use a set rate of expenses for “subsistence”. It also probably means that a new umbrella company might have a harder time applying for a dispensation. To gain a dispensation the employer should carry out detailed sampling of expenses to prove to HMRC that expense levels are accurate and genuine (in simple terms). The new benchmark rates published mean that this does not need to be carried out and a standard fixed rate can be used (but with some tougher caveats).
I also interpret the above as a way of HMRC being able to check for patterns in employees claiming of expenses, will someone claiming lunch every day of the week for three months relate to point 1? Is the travel necessary (and therefore the expense) or is it simply commuting as any employee would do?
A welcome change is the removal of “Friends & Family” Allowance in new dispensations and is also not included in these new rates. Being able to claim for staying at a friends or family whilst contracting has in my opinion, been widely abused and therefore HMRC have acted to remove it, “HMRC has reviewed this policy and concluded that there is no legal basis for giving tax relief because it is not linked to any specific underlying expense.”
Umbrella Companies with existing dispensations will be affected by these changes but only at the point in which they are reviewed. This therefore relates to my earlier point in that not everyone will be affected from day one (which by the way was 6th April 2009) as dispensations are usually reviewed on a 3 – 5 year cycle. Parasol contractors for instance won’t be affected and even when our own dispensation is up for review, we are still able to apply for a renewal. We have a near 10 year track record of being an employer with a true employment model and exacting expense management/audit processes.
So… who wins? HMRC I guess will be able to suggest this route rather than allowing dispensations and less expense abuse should occur. Some genuine Contractors will lose out in terms of take home pay if they use a “cheap” solution that adopts this scale rate approach. It’s not yet creating a level playing field (you still see expense dispensations promoted as sales tools) but probably is a start on the groundwork.
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