In 2016, the government introduced legislation referred to as Supervision, Direction and Control (SDC). Effectively, this put an end to contractors and freelancers working through an umbrella company from claiming tax relief on travel and subsistence expenses. However, we still hear reports of umbrella companies promoting that they will process tax-free expenses, which is concerning. Keep reading for more information.
What is Supervision, Direction and Control (SDC)?
Before 2016, umbrella company employees could claim tax relief on several expenses – most notably travel and subsistence expenses. However, the government decided that umbrella employees were benefitting unfairly. And, it’s worth noting that employees in permanent roles but with almost identical responsibilities did not have access to this tax relief. Therefore, something had to change.
In 2016, the government introduced Supervision, Direction and Control (SDC), and this effectively put an end to umbrella company employees from claiming tax relief on expenses. But what does SDC mean, and how does it work?
If you are under supervision, direction or control when working on your assignment, you fall within the category of working inside SDC. Therefore, you cannot claim tax relief on expenses.
- Supervision – When you are working for your client, is there anyone supervising you and checking you are working correctly? Do you receive any help from anyone else at your place of work? If you answered yes to these, you are subjected to supervision in the workplace.
- Direction – If there is someone giving you instructions on how to complete your work, you could be subjected to direction. If you are, there is almost certainly somebody coordinating how you complete your tasks while at work.
- Control – This applies if someone has the power to tell you what to do and how to complete each task in your role. Someone with control can also ask you to stop what you’re doing and start working on something different.
If you believe you are eligible to claim expenses because you are not subjected to SDC in your place of work, you will need to find an umbrella that can accommodate your rare circumstances.
For more information, please read our blog: What is Supervision, Direction and Control? Also, we have a page dedicated to umbrella company expenses that you may find helpful.
Can you claim expenses if you are not subjected to SDC?
The answer is technically yes. However, because 99.9% of umbrella employees are in some way subject to SDC in their place of work, almost every umbrella company doesn’t allow anyone to claim expenses.
If you are genuinely outside the scope of SDC, you are well within your rights to shop around and see if you can find an umbrella company that will help you compliantly claim tax relief on expenses. However, it might be a mighty task.
Why are some umbrella companies promoting they will process tax-free expenses?
We can’t say for sure, but they are likely non-compliant with HMRC’s rules and regulations. As explained above, almost every umbrella employee is subject to SDC in their place of work and therefore do not qualify for tax relief on expense. If an umbrella company actively encourages you to join them because they can help you claim expenses – you should be extremely cautious. There is a high chance the umbrella is trying to entice you to register with them on either false pretences or because they process expenses non-compliantly. Either way – we recommend you only consider using an FCSA or Professional Passport accredited umbrella company because they adhere to the highest compliance standards in the industry.
Reimbursed expenses
Despite being unable to claim tax relief on travel and subsistence expenses (in 99% of cases), you could still be eligible for reimbursed expenses – if your agency or end-client allow them. So what is a reimbursed expense?
To put it simply, a reimbursed expense is a cost that occurs solely because of the work you are carrying out. For example, if you are required to travel to a specific destination as part of your job, you may be eligible to reclaim the cost of the train ticket. The same applies if you need to make an overnight stay because of your work – you could be eligible to claim the hotel cost back as a reimbursed expense.
For more information about reimbursed expenses and whether you’re eligible to claim them, please speak with your recruitment agency (or end-client) and your umbrella company. Only a few umbrella companies will have procedures in place to compliantly process reimbursed expenses.
Top 10 umbrella companies
If you are looking for an umbrella company for the first time, or you are not receiving a high-quality service from your current umbrella – look no further! We have collated a list of our top 10 umbrella companies, and we highly recommend you check them out. Every one of our top 10 is accredited by either the Freelancer and Contractor Services Association (FCSA) or Professional Passport, and some have special offers at the moment.
