Can You Claim Business Expenses Through an Umbrella Company?

If you work through an umbrella company, you have probably been told at some point that you can claim expenses to boost your take-home pay. For most umbrella workers that is now misleading. A rule change in April 2016 closed off the expense claims umbrella workers used to rely on, and an umbrella that still promises tax-free travel and subsistence is a warning sign rather than a perk. Knowing what you can genuinely claim, and what you cannot, protects you from both an underclaim and a future tax bill.

What Changed in 2016

Before April 2016, umbrella workers could often claim tax relief on home-to-work travel and subsistence, because each assignment was treated as a temporary workplace. New rules removed that for anyone working under supervision, direction or control. HMRC's guidance on working through an umbrella company explains how an umbrella should operate, and the core effect is that your day-to-day commute is no longer an allowable expense in the way it once was.

Supervision, Direction or Control Is the Test

The hinge is whether you work under supervision, direction or control, known as SDC. HMRC treats umbrella workers as being under SDC unless it can be shown otherwise, which for most assignments means your workplace is treated as permanent and home-to-work travel is not claimable. The Low Incomes Tax Reform Group sets this out clearly in its guidance for umbrella company workers, including why an umbrella should not be reimbursing those costs free of tax and National Insurance as part of your normal pay.

What You Can Still Claim

Relief has narrowed, not vanished. You may still get tax relief on genuine in-work costs that are not just getting to work, for example:

• Travel between two workplaces in a day, or to a temporary site that is not your normal workplace, where SDC does not apply to that travel.
• Professional subscriptions to bodies on HMRC's approved list.
• Equipment or tools you are required to buy and use solely for work.

Crucially, where relief does apply, you generally claim it yourself from HMRC after the end of the tax year, not through the umbrella as a tax-free addition to your pay. An umbrella that processes these as salary-sacrificed, tax-free expenses each week is not operating the rules correctly.

Be Wary of Umbrellas Selling Expenses

Treat any umbrella that advertises higher take-home through expense claims, or that still processes home-to-work travel tax-free, as a red flag. These arrangements range from simple non-compliance to disguised remuneration schemes that leave the worker, not the promoter, facing the eventual tax bill. An unusually high quoted take-home is almost always a sign that something is being claimed that should not be.

Expenses Are One Reason to Compare Umbrella with Limited

The expense restriction is one of the practical differences between working through an umbrella and your own limited company, where genuine business costs reduce the company's taxable profit. We weigh the two structures up in our umbrella versus limited company guide, and the wider picture of what a contractor can deduct is in our contractor allowable expenses guide. If you are not sure your umbrella is handling expenses correctly, or whether you would be better off limited, tell us your situation through the form on this page and we will check where you stand.