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Umbrella contractors could face tighter expenses regime from 2013 Budget

Contractors are likely see tougher rules on expenses, which may lead to the practice of ‘round sum’ expenses claims without receipts being banned in the 2013 Budget. This is according to professional employment organisation Parasol, which is rolling out new expenses procedures in anticipation of possible changes.

“We know government is targeting the contracting industry and we feel it’s only a matter of time before all round sum allowances are removed,” Parasol managing director Derek Kelly said in an interview with ContractorCalculator.

The issue of umbrella company expenses attracted the attention of the national media following a 5 Live Investigates story which broke in October 2012 and revealed expenses abuses by Umbrella companies and payroll bureaux. As a result, the House of Commons will be debating the regulation of payroll companies on 16 January 2013, led by Leyton & Wanstead MP John Cryer. Kelly expects legislation to follow, possibly as soon as the 2013 Budget.

Call for industry-wide introduction of a ‘statutory allowances model’

The recent media focus and impending Commons debate is seen by Kelly as the “start of an interesting year for umbrellas, as the government is going to make changes because some companies are abusing the system.

“We are introducing new expenses procedures changes for our 8,000 plus employees so that when, not if, legislative changes come we are ahead of the game. We would urge other providers to follow our lead and implement a ‘statutory allowances only’ model to ensure they are fully compliant,” he adds.

We know government is targeting the contracting industry and we feel it's only a matter of time before all round sum allowances are removed

Derek Kelly, Parasol

Responding to why Parasol is taking pre-emptive action, he comments: “Many service providers were caught out by the introduction of the Managed Services Companies legislation outlawing composites, with only two weeks to comply, and other changes to the law such as the Agency Workers Regulations (AWR) and pensions auto-enrolment.”

Contractors who only claim legitimate expenses have no need to worry

Kelly believes that most contractors already ‘do the right thing’ by only claiming for legitimate business expenses for which they have a receipt: “We conducted a random sampling of our contractor employees to determine whether expenses claims could be validated with original receipts. All of those surveyed provided a receipt.”

But he claims that this may not be the case for contractors employed by some of Parasol’s competitors: “It is unlikely that umbrella companies without robust expenses procedures will be able to respond in time to any sudden changes in the law, which will impact negatively on their contractor employees’ net take-home pay, and result in lost business.”

Technology underpins new expenses processes

According to Kelly, new software and mobile technologies have revolutionised expenses processes, and make possible the move towards receipts-only expenses models: “In the past, contractors claimed expenses monthly, and had to send original receipts as hardcopies via recorded delivery, which involved a trip to the Post Office.”

The process was cumbersome and, when magnified by thousands of contractors submitting claims each month, was a huge administrative task. So at the time, accepting non-receipted expenses was seen as an acceptable compromise. But technology has changed that approach.

“We’ve agreed with our VAT office that it will accept scanned receipts and increased the expenses claims frequency to weekly,” says Kelly. The simplicity and ease of this kind of system removes barriers to providing receipts for all expenses.”

What the changes to expenses procedures may mean for contractors

If the changes being introduced by Parasol become adopted by the wider industry, or even become enshrined in law following the 2013 Budget in March, then contractors who only claim legitimate expenses will experience little change.

“The changes Parasol employees will experience from next month will bring our expenses procedures in line with HMRC’s scale rate expenses,” says Kelly. “For example, where previously we allowed contractors to claim for an un-receipted breakfast of up to £5 if leaving home for an assignment before 07:00 am, in future the departure time will be in line with HMRC’s 06:00 time.”

And previously, under Parasol’s dispensation contractors could claim up to £45 per night for overnight accommodation without requiring a receipt. Now, all overnight accommodation must be receipted. “However,” says Kelly, “contractors can continue to claim subsistence and accommodation above HMRC’s scale rates on production of an original or scanned receipt.”

Kelly concludes: “Contractor best practice has always been to keep all receipts for legitimate expenses incurred, so in that sense it will be a case of business as usual.”

Published: 15 January 2013

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