With the changes to IR35 that were rolled-out on April 5th 2021, many contractors working in the private sectors have found that they can only be paid via an umbrella or internal PAYE.

Under PAYE/umbrella, the way that these contractors work has had a near-complete change. No longer can they work through their Limited Company, paying themselves a wage and dividends, nor can they claim the usual expenses that they were able to claim previously.

Most of the rules under PAYE/umbrella are very restrictive in regards to what you can and can’t claim as the contractor is regarded as being under SDC (Supervision, Direction & Control).

SDC is at the heart of IR35 and is what deems a role/position inside or outside of IR35. More information on IR35 can be found in our guide posted here.

So can I claim expenses?

The expenses that were usually claimable when working through a Ltd are generally no longer available as the contractor is now classed as a ‘full employee’ of an umbrella or agency. As such, the ’employer’ will have to follow the guidelines set by HMRC which can be read by clicking here.

Some expenses can be claimed directly with HMRC by the contractor as long as they meet the criteria set by HMRC. This can be checked by clicking here.

There are some exceptions to the rule and those affected with the main one being the multi-site or 24 Month rule.

The 24 Month Rule

A workplace that an employee attends for the purpose of performing a task of limited duration or for some other temporary purpose is classed as a temporary workplace. But there is a further rule that prevents a workplace from being a temporary workplace. Where an employee attends the workplace in the course of a period of continuous work that lasts, or is likely to last, more than 24 months this further rule applies and the workplace will be classed as a permanent workplace. This rule does not apply unless the workplace is capable of being a temporary workplace as defined by S339(3) ITEPA 2003.

A period of continuous work is defined by Section 339(6) ITEPA 2003 as a period over which the duties of the employment are performed to a significant extent at that place. To apply this rule you should treat duties as performed to a significant extent at any workplace if the employee spends 40% or more of his or her working time at that place.

Generally this ruling affects the contractors ability to claim mileage if they are using their own vehicle for the purpose of the employment, and the fuel is paid for by the contractor and not reimbursed. An example sector that this comes into play with would be rail/track workers that travel to multiple sites over the course of fulfilling their role.

So can I claim expenses?

Generally most contractors can not claim expenses through an umbrella or under PAYE. There are exceptions to the rule but you will need to meet the very specific conditions set out be HMRC.

Exceptions to the rule

Scale Rate Payments were introduced for contractors working in the Logistics sector. Lorry and HGV drivers have been given special dispensation by HMRC that give specific subsistence rates based on the amount of time they are on the road as well as how much time they are on the road. This can be claimed directly by the employer for the employee. More information can be found on this by clicking here.

If you are unsure if you are eligible for any kind of expenses claim whilst working through an umbrella, give us a call on 020 3819 7220 and we will be more than happy to help.

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