Dispensation – The Facts

Honesty Pays…

Many Umbrella Companies offer the facility to offset large amounts for daily subsistence all without the need for you to send in receipts. They are able to offer this thanks to an agreement with the HMRC called a dispensation which allows the Umbrella Company to offset the expense without having to collate the receipts.

So how does this dispensation, affect you the contractor. Well simply it means that you need to keep the receipts instead of sending them in to your Umbrella Company, it also means that you have to ensure that you are only claiming for the expenses you are incurring.

If you were ever to be suspected of over-claiming by the HMRC they would investigate you and if you could not provide receipts to substantiate your claim, you could face a large tax bill complete with fine and interest.

The HMRC could even choose to investigate your Umbrella Company, including all other contractors within that company, if they were to believe that over claiming was happening and not being policed.

So what exactly is a dispensation?

A dispensation is an agreement the HMRC have with the company and not with the individual contractor.

A dispensation allows the Umbrella Company to record certain expenses on your P11D without the need to file and record receipts.  The dispensation therefore saves the Umbrella Company a lot of time and paperwork a benefit to the Umbrella Company rather than the contractor.

Dispensation – Your Questions

With an HMRC dispensation one Umbrella Company can offset more expenses for me than another?

This is simply not the case. The amount you can claim is the same regardless of which Umbrella Company you use.  The amounts shown within a dispensation are just the upper limits the Umbrella Company can claim for you without them needing a receipt.  However you need to keep the receipt in case you were ever asked by the HMRC to substantiate your claim.  This could happen if the HMRC were to believe you were to be over claiming.

As I do not need to send in receipts, I can claim this expense even if I do not incur the cost?

Again this is not the case. It stands to reason that if you do not incur the expense you cannot clam it as an expense.  If you do it is classed as over-claiming and can result in implications from the HMRC.