Tax on Expenses Mileage

[purpleronnie]

I have recently started contracting through an umbrella company. I have been claiming mileage expenses from the client which have been paid to the agency who in turn pay the umbrella company. The umbrella company seems to be taxing me on the mileage, and just treating it as income there is no breakdown of expenses on my pay slip. I though mileage expenses should be tax free?

From a total income of £901 my take home pay was £617. The £901 included £598 of salary and £303 of mileage claims which the agency paid the umbrella. Surely I am being taxed too much? I have been claiming the mileage direct from the client rather than using the umbrellas expense system as the client pays 47 pence a mile as opposed to the standard 40 pence rate.

Any advice would be grateful should I ditch this umbrella company?

[RichardCranium]

Edit: actually, you may as well ignore what I said below. I've been told so many conflicting things about expenses by various accountants that I haven't been able to get my head around this sort of problem for about 3 years.

If you can claim mileage from the client, then you would be better off claiming it direct from them, not through your brolly, surely?

Otherwise, your brolly, as your employer, can keep the 47p / mile and pay you the 40p / mile the government says you can have without paying tax on it.

What a mess.

However, as these are rechargeable expenses, you should be getting what the client is paying (although I suspect you'll pay tax on the extra 7p over the 40p). Unless the agency is up to something with them as well.

Did speaking to the brolly not result in any meaningful explanation?

[purpleronnie]

I did speak to someone briefly from the brolly on Friday and they told me to put another claim into them with VAT receipts etc. Surely this can't be right/legal as I have already claimed for this mileage from the client/agency?

It seems to me they have taxed me on the entire amount and treated it as income and not just taxed me on the 7p above the 40p base rate.

[Sockpuppet]

I have recently started contracting through an umbrella company. I have been claiming mileage expenses from the client which have been paid to the agency who in turn pay the umbrella company. The umbrella company seems to be taxing me on the mileage, and just treating it as income there is no breakdown of expenses on my pay slip. I though mileage expenses should be tax free?

From a total income of £901 my take home pay was £617. The £901 included £598 of salary and £303 of mileage claims which the agency paid the umbrella. Surely I am being taxed too much? I have been claiming the mileage direct from the client rather than using the umbrellas expense system as the client pays 47 pence a mile as opposed to the standard 40 pence rate.

Any advice would be grateful should I ditch this umbrella company?

No. What you need to do are invoice the agency for Salary and Mileage (separate out the line items).

At the same time put in an expenses claim to the umbrella for the same number of miles. Just put it down as not being invoiced to the client on their system.

What they will do is invoice the client for say £47 for 100 miles. They will then pay you £40 for the 100 miles and you'll pay tax on the £7.

Simples.

[VectraMan]

I did speak to someone briefly from the brolly on Friday and they told me to put another claim into them with VAT receipts etc. Surely this can't be right/legal as I have already claimed for this mileage from the client/agency?

You personally need to claim the mileage from your employer, which in this case is the umbrella. What goes on between the umbrella and the client is in theory nothing to do with you, but as it happens an amount is paid which includes mileage expenses. But that's nothing to do with whether or not you personally can claim expenses, and in fact most contractors claim expenses tax free in this way without the client/agent paying any extra in expenses. The two aren't connected, and what you may or may not get from the client/agent doesn't affect the amount you can personally claim.

So yes, what they're saying is correct and legal. You are not claiming twice: you are claiming once from the umbrella, and the umbrella is invoicing the agent/client for an additional agreed amount.

Confusing I know. But really you're over-thinking it.