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New subsistence rates for umbrella company contractors

Published on Apr 15, 2009 |

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HMRC has announced new 'benchmark scale rates' for subsistence expense claims from employees who travel away from their normal workplace - effective from 6th April 2009.

Currently, employers (such as umbrella companies) must notify HMRC of all expenses they pay to their employees, unless they have a dispensation.

What is a dispensation?

A dispensation may be granted to employers to help them cut down on the amount of administration they have to undertake to process expense claims.

Umbrella companies, for example, can pay their contractors an agreed rate for certain expenses, without having to report each incidence of the expense to HMRC.

Under the old system, employers had to undertake a 'sampling' exercise before HMRC would agree to a particular rate being included in the dispensation.

As this sampling process was seen to be burdensome and expensive to operate, HMRC have instead decided to introduce a system of benchmark scale rates for subsistence payments - so employers no longer need to implement a sampling process if they don't want to.

Only claim expenses you have incurred

In the contracting industry, some umbrella companies are are said to have used their dispensation rates as a marketing tool - encouraging their contractors to claim the maximum amount available for certain expenses, even if they did not actually incur the expenses in the first place.

It is important to note that contractors can only claim for expenses they have actually incurred whilst on business duties.

What are the new benchmark scale rates?

You can access the benchmark scale rates, and qualifying conditions at the HMRC site here.

Do umbrella companies have to use the new benchmark scale rates?

No, they don't. Umbrella companies can either reimburse contractors' actual expenses, or apply to HMRC for an expenses dispensation (as most of them currently do).

If an umbrella scheme wants to use a higher scale rate, however, it would be required to undertake a sampling exercise to show that such rates are in line with what its employees actually spend on subsistence expenses.

What happens to existing dispensations?

According to the HMRC tax brief, existing dispensations remain valid until they're reviewed by HMRC - typically every five years.

Once a dispensation comes up for review, the employer (umbrella company) can either use the new benchmark scale rates, or continue to use a tailored rate.

However, the employer will need to go through the sampling process once again before being granted a new dispensation - just as they do now.