Umbrella Companies Confusing Contractors with Dispensations

There are umbrella companies and there are Accountants offering an Umbrella company option, the difference being that the latter will be accredited by a accounting body such as CIMA and thus have more knowledge and understanding of the constant changes in the legislation HMRC keep making.

One of the most ambiguous topics lies with an umbrella companies ‘dispensation’. A dispensation is an agreement between the Umbrella Company and HMRC, allowing the umbrella company to minimise the amount of receipts they must send to HM customs for evidence that expenses have been incurred. HMRC have given some companies higher dispensations than others based on their own judgment of the company, which has led to some confusion amongst contractors and certainly some umbrella companies.

The dispensation simply minimises the administration burden for umbrella companies and certainly HMRC. Could you imagine HMRC having to collate millions of receipts, from a £0.30p chocolate bar to a £2000 laptop? No, neither could I, and that’s precisely the reason they issue dispensations, providing that the umbrella companies employees do not abuse it by recovering tax from an expenses they did not actually incur.

Although this seems quite simple to understand, some Umbrella companies fail to explain what a dispensation is to their clients, and thus the dispensation is abused. A contractor may claim £300 in expenses but £200 of that amount is a false claim, which in turn makes him liable for that tax avoidance & NOT the umbrella company whom failed to give him the correct advice.

The following was recorded in a conversation with one of the most well known umbrella companies in the UK, Giant:

Giant: "We don't require any receipts, (contractors) can claim (£90) per night whether they spend the full amount or not.

US: Isn't there a danger I might make a profit if I don't spend the full amount but claim it?

Giant: "Say your hotel costs £50 a night. We have a set amount of £90 regardless - so you're getting more tax relief.... "

US: If I spend £50 and claim £90, won't I then be making a profit on expenses?

Giant: "It's just a perk of you working through an Umbrella company. You get these allowances which you may not necessarily be spending the full amount of, but because you are actually incurring part of that cost you are entitled to offset the full amount of our allowance. That's how it is. That's how a dispensation rate works." (sic)

This has is totally absurd, and contractors that have been given this advice should switch to an umbrella company run by certified accountants. HMRC can investigate as far back as 6 years, and if you have been claiming so-called expenses you have not incurred, prepare yourself for a hefty tax bill.
The alternative is to find a quality accountant.

Danbro are regulated by CIMA (Chartered Institute of Management Accountants), recognised as a Quality accountants by the PCG (Professional contactors group), Umbrella supermarket approved and recently featured in the Sunday times Fast Track 100. If you’re looking for an umbrella company or an accountant that knows what they are talking about, choose Danbro. T: 01253 600140 E: enquiries@danbro.co.uk www.danbro.co.uk

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