Dispensations (sometimes referred to as ‘scale rates’) are a bone of contention among many umbrella companies. Every business would normally be required to complete a P11D which is breakdown of all the expenses for each employee in relation to expenses they have claimed during the tax year (The HMRC does not require certain expenses to be declared on the P11D, such as mileage costs). A dispensation is basically a way of reducing paperwork as the granting of a dispensation relieves the employer (the umbrella company) from having to complete P11D’s, saving time for both the Umbrella Company and the HMRC. A dispensation is an agreement between the HMRC and any company (not just umbrella companies).

The dispensation will allow the company to offset an agreed amount of expenses without having to provide details of them to the HMRC. The dispensation does not allow the umbrella company to allow expenses when no real expenditure has taken place, nor does it mean that the individual should not keep receipts for all business expenditure incurred ‘wholly and exclusively’ in the performance of your duties.  Put simply, receipts are your ‘insurance’ if the HMRC investigate you, you will need to be able to provide proof of these expenses.

Note: A dispensation is not an indication of the expenses you are entitled to claim. If you want to claim a business expense you can as long as it was “wholly and exclusively incurred in the performance of the contract.” If you spend £5 on lunch then you can only claim £5 back – NOT the amount an umbrella company will say you can claim. If you have underpaid any tax, it is you, and not your umbrella company who are liable.

Redego has made the decision not to have a dispensation. We will only allow expenses that are “wholly and exclusively incurred in the performance of the contract.”