When working through an Umbrella Company you can legally reduce your tax liability by re-claiming certain expenses that you have paid in connection with your work. HMRC state that the expenses you claim must be incurred wholly, exclusively and necessarily in the performance of your duties.
Generally, an Umbrella Company will process two types of business expenses; billable and non-billable expenses.
A billable expense is a reimbursement for a cost incurred by you and paid to your limited company by the agency / end client as an addition to your normal labour invoice. The nature of the expense will determine whether it can be paid back to you before tax from your limited company.
A non billable expense is an expense incurred by you but not charged to the agency / end client as an addition to your normal labour invoice. As with billable expenses, the nature of the expense will determine whether it can be paid back before tax from your limited company.
You are entitled to claim the travel and subsistence expenses
listed below only when performing your duties at a 'temporary
workplace'. A temporary workplace is defined as a place of
work you attend to perform a task of limited duration or for some
other temporary purpose.
As a freelance contractor, you will undertake consecutive short term assignments onsite at the client's main place of work. Travel and subsistence expenses cannot be claimed if you have worked, or when you know you will work, more than two years at one particular location. If your contract dates are extended to a period greater than two years your expense account will be frozen to comply with HMRC regulations. In this event, the definition of your workplace for tax purposes changes from 'temporary' to 'permanent'.