"I get *all* my expenses back..."

[Trev16v]

Hi all,

New guy here. Please don't kick the newbie too hard. I haven't been contracting for too long (around three years) and I work in electronics and embedded software. I use a Limited company and use Brookson for accountancy.

Now I've always understood that the result of 'claiming back expenses' is that you pay Corporation Tax on the profit that is the total income minus expenses. So in simple terms, 'claiming back your expenses' really means that, by the time you've taken your salary and all dividends for a given period, you in effect recover just a fifth of the expenses you have had to pay out of your pocket. Or, if I were to stay in a £30 B&B for five nights in a row, then what's in my pocket has been dented by £120.

Yet on numerous occasions I've spoken with contractors - some of them complete newbies, some of them long established - who insist everything's paid back to them.

Is this just a common stupid misconception? Or, am I missing something, despite how the FAQs on both the Brookson website and on this very website demonstrate quite clearly that claiming expenses just provides Corporation tax relief? I feel stupid having to ask this here, but when you've had to argue until you're blue in the face with some other guy who's insisting black is white, you can start to doubt yourself.

Furthermore, a guy with whom I was having such an argument very recently was also insisting that he had 'no Corporation tax to pay this year whatsoever' as a result of claiming expenses. Uhm...

On another note, why do some contractors have to 'talk big' and 'big themselves up', consistently refer to themselves as "We" rather than "I" during all conversation with you, just because they've got their spouse named as a shareholder?

I'll wind my neck in now.

Cheers,

Trev

[ratewhore]

Fair point, well made.

Consider this, if I buy a book for business purposes out of my personal money, I am entitled to reimburse myself the full cost of the book. So, your colleague is correct so far, he has paid himself back the full amount.

In your accounts, the cost of the book will be taken off your profit before CT is applied, which reduces the CT by 20% (for simplicities sake) of the value of the book. So you are right.

As for the guy you work with, he's clearly on a very very poor rate, oh yeah, and talking out of his hoop...

[Alan @ BroomeAffinity]

You are right Trev. So take the high ground and rest secure in the knowledge that those around you are (a) misinformed; or (b) monumentally stupid.

[TheBigYinJames]

On another note, why do some contractors have to 'talk big' and 'big themselves up', consistently refer to themselves as "We" rather than "I" during all conversation with you, just because they've got their spouse named as a shareholder?

There's a lot of testosterone attached to being a freelancer. Many believe themselves to be entrepreneurs, and derive a lot of their value of self-worth from the mistaken belief that they are the do-ers of society rather than workers.

I believe this stems from the fact that many are young, and deprived of the self-referential respect that moving up within a company might have given them with their friends and family, have to derive their self worth from somewhere, they put it onto their income and perceived status as a 'company director'. As this is usually not recognized by people outside of the contracting world, they sometimes feel they are having to justify "not having a real job" to their family and friends all the time, and I believe it's this level of alienation that drives a lot of them to start denying the existence of society and become what we know affectionately here as Toryboys.

In reality, working as a freelancer is not much different from what they'd be doing as a graduate recruit at a big company. Contracting is a payment model, it's not an ethos. It doesn't define who you are, only the method that money gets from the person you do work for to your personal bank account.

[NotAllThere]

....Is this just a common stupid misconception?...

Yes

....On another note, why do some contractors have to 'talk big' and 'big themselves up',...

Small private parts.

[expat]

Yet on numerous occasions I've spoken with contractors - some of them complete newbies, some of them long established - who insist everything's paid back to them.

Everything is paid back to them, but it is paid by their company, with money that it could otherwise have used for salary etc. It has to be their company that pays, who else is there? The Tooth Fairy?

[expat]

There's a lot of testosterone attached to being a freelancer. Many believe themselves to be entrepreneurs, and derive a lot of their value of self-worth from the mistaken belief that they are the do-ers of society rather than workers.

I believe this stems from the fact that many are young, and deprived of the self-referential respect that moving up within a company might have given them with their friends and family, have to derive their self worth from somewhere, they put it onto their income and perceived status as a 'company director'. As this is usually not recognized by people outside of the contracting world, they sometimes feel they are having to justify "not having a real job" to their family and friends all the time, and I believe it's this level of alienation that drives a lot of them to start denying the existence of society and become what we know affectionately here as Toryboys.

In reality, working as a freelancer is not much different from what they'd be doing as a graduate recruit at a big company. Contracting is a payment model, it's not an ethos. It doesn't define who you are, only the method that money gets from the person you do work for to your personal bank account.

[TheFaQQer]

You are right Trev. So take the high ground and rest secure in the knowledge that those around you are (a) misinformed; or (b) monumentally stupid.

I'll add (c) so bad at their job that the company makes no money. (which may be covered by (b) already )

[Alan @ BroomeAffinity]

In fairness, what contractors say to each other and what happens in reality can be distant relatives at best. I often speak to contractors who say that their mate (who is also a client of mine) is only paying £xx in tax when it turns out that they are only paying £xx in PAYE plus £yyy in CT.

[Jaws]

With regard to the expenses, I view it as slightly more than 1/5th off because if I'd been spending my own money, it would no doubt be inside the higher rate tax band. I thought it was closer to 1/3 off.