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How to understand a Dispensation

Much is said by umbrella companies about HMRC dispensations. A quick scan of the top 100 umbrella company websites shows that nearly all of them mention their dispensation. Some of them make a passing reference to it while many herald it as something rather special which sets them apart from all other umbrella companies.

– The truth is if an umbrella company has a dispensation it means very little, if nothing at all, to its contractors.

Any company in the UK can apply for a dispensation from HMRC. The BBC has a dispensation as does Shell as does HSBC as does almost every company listed on the stock exchange. In fact the majority of UK businesses have applied for a dispensation and HMRC have granted them one. The fact that an umbrella company operates with a dispensation is not remarkable at all. What would be newsworthy is if an umbrella company does not have a dispensation.

JMK Group UK gives the straight truth to contractors about umbrella company dispensations:

– "A dispensation is an administrative tool which benefits HMRC and the umbrella company. It is not meant to benefit the contractor - and it doesn't benefit the contractor in any meaningful way." So says Stephanie Buck, Sales Director of JMK Group UK. "At the end of the financial year a contractor doesn't have to record their expenses in their tax return - that's the single main benefit to contractors."

If an umbrella company has a dispensation it does not mean their contractors can claim for expenses which otherwise they wouldn't, it doesn't mean their contractors can pay less tax and it certainly does not mean they are in any way protected from an HMRC investigation.

 

 

Who Benefits from a Dispensation?

HMRC and the umbrella company benefit from a dispensation. If an umbrella company (the employer) does not have a dispensation it would mean that at the end of the year it would have to complete an HMRC form, called a P11D, for every single one of its contractors (the employees). It would also mean that HMRC would have to check each of these P11D's. This amounts to an awful lot of administration for both the umbrella company and also HMRC.

– In order for HMRC to reduce its workload, for all businesses not just umbrella companies, and become more efficient (a key Government indicator for public services) it came up with a plan to bypass the requirement for expenses & benefits to be individually recorded for employees. This plan is called a dispensation.

It makes the administration a lot simpler for both the umbrella company and for HMRC. There are fewer forms to complete and so less forms to check. HMRC becomes more efficient and umbrella companies have considerably less to do at the end of each year.

 

 

Warning

A dispensation is not a way for contractors to claim for extra business expenses without a receipt. If a contractor wants to make an expense claim there must be a receipt. No receipt no claim.

JMK Group UK gives contractors this warning about some umbrella companies:

– "Contractors should not be fooled by an umbrella company that claims to have a ‘special' dispensation or that the umbrella company is ‘approved' by HMRC. Neither of these claims is true. Whatever administration arrangement there is between the umbrella company and HMRC, the contractor remains responsible for claiming expenses in the correct way."

To claim expenses there must be a receipt and/or other proof that the money spent was a proper business expense carried out in the performance of the job. Expense claims are not meant to make a profit; they just reimburse you for actual monies spent.

And remember, it's the contractor not the umbrella company who will be in the firing line of any HMRC investigation.

 

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written on2010-08-21 21:02:25

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