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Travel and subsistence expense dispensations

Posted on by Steven Beggs

Over the past year there have been widespread reports in the media concerning tax avoidance schemes. Many of these have been aimed at celebrities and large corporations. However, the recruitment industry has also received a lot of negative media attention specifically regarding travel and subsistence expense dispensations.

Expense dispensations are often granted to employment businesses and umbrella companies that provide payment services to employees. Companies operating these dispensations are excused from reporting said expenses to HMRC at the end of the financial year. Although these businesses do not have to report this financial information, they still benefit from tax and National insurance deduction relief.

Tax relief cannot be claimed on normal commuting costs from home to a permanent place of work. However, travel and subsistence expenses in connection with business travel are excluded from class one National Insurance contributions and tax deductions. The eligibility of these expense claims depend on three factors:

The claimant of the expenses is an employee (temporary workers may be under an over-arching contract e.g. with an umbrella company).

The employee does not have a permanent workplace. A permanent workplace is somewhere they have worked or plan to work for over 24 months.

The employee must actually incur these travel and subsistence costs.

Unfortunately, it is easier for the companies operating expense dispensation schemes to avoid compliance should they choose to do so. It is often the employer (e.g. the umbrella company or recruitment business) that benefits from tax and National Insurance savings rather than the employee. This is because less ethical companies refrain from passing the savings onto the employee in order to gain higher profits.

There are often issues regarding employees who work at National Minimum Wage and partake in salary sacrifice schemes. In 2011, HMRC changed the National Minimum Wage legislation to ensure that employees are paid the National Minimum Wage before travel and subsistence payments are added. Unfortunately many umbrella companies and employment businesses fail to comply with this which results in employees earning less than minimum wage after salary sacrifice deductions.

Following a recommendation by REC in 2008, HMRC now carry out periodical reviews of dispensations in order to monitor compliance with legislation better. However, it is not possible for HMRC to review all dispensations. A recurring criticism is that little action is taken against cases of reported non-compliance.

It is therefore crucial for temporary workers to choose a payment service provider that they can trust to be compliant.

We consider Simplyco to be one of the best umbrella companies available. This is because we are fully compliant with all HMRC rules and taxation legislation, only allowing those expenses that are incurred, wholly, exclusively and necessarily. Only expenses that can be proved by receipt are accepted to ensure full compliance.

Unlike many of our competitors, we do not make wild claims about being HMRC approved. Contrary to popular belief, HMRC do not approve or disapprove of any payment service companies. It is not necessary for us to make claims of HMRC approval because we are confident that we follow all legislation to the letter and we have years of experience to prove it.

Simplyco are expert contractor accountants and give expert advice to contractors, freelancers, interims, locums and the self-employed. To learn more about the services we provide, please give us a call on 01900 898 440 or email

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