Here are some myths about claiming expenses from umbrella companies that need busting
The role of the umbrella companies:
An umbrella company acts as an employer for contractors who are further employed by the client companies. The employment of the contractors may be for a fixed period of time say for one year or it could be project specific where the contractor will be expected to work until the project sees the light of the day.
The real reason why the umbrella companies are successful today is that client companies have limited liabilities with regard to employing fresh talent. The people who opt for jobs as contractors are those that do not like to spend all their time and energy in working in one place. He is typically the kind of employee who would want to shift his employment role and gather as much experience as possible.
This is exactly what the client companies are looking for. People with diverse portfolio and diverse skills are much sought after. Additionally, the contractors have many years of experience to their credit which makes them extremely job worthy!
How does the umbrella company benefit?
The umbrella company acts like a middle person between the client company and the contractors. And as part of the services rendered it collects a small margin from the contractor’s salary. The payment for the work done by the contractor is paid by the client company to the umbrella company and the umbrella company also deducts the statutory taxes and the social deductions before handing over the salary to the contractor.
We will continue busting certain myths that surround the umbrella companies and the way it works.
- All umbrella companies can only allow same expenses to be claimed:
It is a serious myth that certain umbrella companies can allow their contractors to claim more expenses than others. On the other hand, if any of the umbrella companies is campaigning that they can allow more expenses to be claimed, you must certainly smell as rat. It is only an advertising strategy and is no good to lure contractors from one Umbrella Company to another.
- You can only claim such expenses that are made:
In no circumstance can you claim any expense that is not made in the course of the employment itself. Thus if you want to know if you can claim so and so expense there are certain tests to pass to see whether the expense so claimed will be allowed at all in the first place. firstly, that there must be a proof that the expense has been really incurred by you. This is a very important t because you cannot claim any expenses to be reimbursed unless you prove being reasonable doubt that the expense has actually been incurred. Secondly, you will have to prove that the expense has been incurred during the course f the employment. The receipts have to produced in order to claim the expenses and at the same time there is a diktat from the IRD or the Internal Revenue Department that receipts of five years have to be preserved in case there is a need for random checking and the onus of preserving the receipts for the expense so claimed is on the contractor.
- The umbrella company is not a managed services company and therefore cannot claim any further tax deductions:
The year 2016 saw an amendment in the revenue department rules and therefore it is understandable if some people think that the umbrella companies also comes within the ambit f the Managed services company. In fact is that it is not and therefore cannot claim any further allowance or deductions.
- Can you claim food and drink allowance daily when you are out of home?
This one is another field but certain court cases have silenced this argument forever that one can claim a meal and a drink allowance when you are in the course of employment and away from home. What the court has set down is that while food and drink is an important part and parcel of the survival, the contractor will not be allowed to claim it daily because survival is not incidental to the employment.
- The umbrella company can have higher margins so that the contractor’s tax liability is lessened:
The umbrella companies are totally governed by the rules and the regulations that are laid down by the Internal Revenue Department. So, there is no way that any increase in their profit margin can affect the contractor’s tax payment on his tax code. There is absolutely no connection between the two. The umbrella company will deduct the tax payable by the contractor and other social liabilities along with its own margins which will derive the final amount that the contractor takes home!