How to understand a Dispensation

Most Companies Have A Dispensation

Many umbrella companies talk about their HMRC dispensations. In reality, an umbrella company dispensation means very little, if anything, to contractors.

Many companies have a dispensation from HMRC - the BBC, Shell and HSBC to name but a few. The majority of UK businesses which have applied for a dispensation have been granted one.

• The fact that an umbrella company operates with a dispensation is hardly remarkable.

• 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.
• At the end of the financial year an umbrella company doesn't have to record their contractor's expenses, that's all.

If an umbrella company has a dispensation it does not mean

1. Contractors can claim for expenses which otherwise they wouldn't
2. Contractors can pay less tax
3. Contractors are in any way protected from an HMRC investigation

Who Benefits from a Dispensation?

The contractor doesn't. 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 - an awful lot of administration for both parties.

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.

• There are less forms to complete and so less forms to check. HMRC becomes more efficient and umbrella companies have considerably less administration.

Warning

If a contractor wants to make an expense claim there must be a receipt. No receipt no claim. A dispensation doesn't stop the need for this.

• 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 are true. Whatever administration arrangement there is between the umbrella company and HMRC, the contractors remain responsible for claiming expenses in the correct way.

To claim expenses there must be a receipt &/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.