Given the upheaval surrounding the Managed Service Company legislation, as well as ongoing misunderstandings about how contractor umbrella companies actually work, one of the leading suppliers in the industry has posted some common myths and facts about umbrella companies on its website.

According to Contractor Umbrella, long-term associates of the Contract Eye team, most "myths" relate to what can actually be claimed as a legitimate expense.

One classic myth revolves around umbrella companies who claim that they have a "special dispensation" from HMRC to allow its contractor clients to claim more expenses than other contractors!

Contractor Umbrella says on its website:

A dispensation simply relieves an Umbrella Company from reporting expense payments and benefits on a P11D form. If an Umbrella Company claims to have a 'special dispensation' all this means is that they don't need receipts to process your expenses. You personally do not have a dispensation so it is really important that you keep receipts for everything that you claim. If the Inland Revenue investigates they would ask you to produce receipts for everything that you have claimed (the only exception being the £5 overnight allowance). If you are unable to provide receipts it is you that is liable for an additional tax bill and fine, not the Umbrella Company as some claim!

Gaining reliable and easy to understand information about what contractors can and cannot expense, isn't as easy as it may appear. Even HMRC struggle to condense such information, indeed their '2007 Expenses and Benefits - A tax guide' is a ridiculous 100 pages long.

Lisa Keeble, Managing Director ContractorUmbrella said:

"It is extremely difficult to gain safe and ethical advice as a contractor. The implications of getting it wrong can be time consuming and very expensive with the Revenue clawing back lost tax and NI contributions, as well as levying financial penalties".

You can read the Myths and Facts page here.