What is a Dispensation? Business expenses for Contractors

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I am thinking of contracting and have been told that I can maximise my earnings through an Umbrella Company if they have an expenses dispensation from the tax man.

What is an expenses dispensation?

Ok, before you fall asleep, let me tell you in laymen terms what it is. It allows 'employees' to claim for business related expenses without the need to submit necessary receipts. An Umbrella Company can only get one if it is approved by the taxman.

It allows employee's to offset their tax and NI with genuine business related expenses.

The benefits of working through an Umbrella Company with an approved dispensation are that:
-- the employer does not report the expenses on form P11D.
-- the employee does not have to include them on his income tax returns.
-- the expenses have no bearing on the PAYE tax code of the employee.

So how do Umbrella Companies obtain a dispensation?

The Umbrella Company will need to pass several tests set by the Revenue. They will assess the kind of expenses to be claimed and know exactly who is authorised to approve reimbursement.

& what does an expenses dispensation cover?

A dispensation can cover any travel related expenses such as food and mileage incurred in making genuine business journeys.

The Revenue will review the dispensation on a regular basis; and may be withdrawn if the qualifying conditions are no longer satisfied.

If you don't want the Revenue to come knocking on your door -- make sure you have written proof from your Umbrella Company.

Thank you -- I'll definitely make sure my future Umbrella Company has a written expenses dispensation before I start using them.

References;

Tarpon website
http://www.tarpon-uk.com/inland-revenue-dispensation/info/?WT.mc_id=ON_V_YouTube

Wikipedia
http://en.wikipedia.org/wiki/Umbrella_company

HMRC website
http://www.hmrc.gov.uk/paye/exb-intro-dispensation.htm

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