Understanding contractor pay

[dermot341]

Ok Newbie here with a pay question

Trying to understand how my net pay is calculated given I'm working via an umbrella company

If anyone can provide links to ofther threads etc that answer this question I would be most grateful.

If my monthly gross is say £1000 and there are £200 expenses is my pay calucalted as

1) Gross pay minus tax, NI's, Umbrella company fees etc to give a Net pay AND THEN £200 expneses added to give fianl pay

or

2) Gross pay minus tax, NI's, Umbrella company fees and expenses to give a next taxable pay. Then the expenses are added back in to give final pay

I think it is Option 2 but I'm not sure.

If I'm reading things right my expenses are deducted first to avoid inclusion for tax purposes and then added back latter.

This means that my expenses are paid out of my hourly rate (tax free) and not paid IN ADDITION to the hourly rate.

Hope this all make sense.

Gratefully for any input.

[NotAllThere]

...
This means that my expenses are paid out of my hourly rate (tax free) and not paid IN ADDITION to the hourly rate...

Of course they are. Who else is going to pay them?

Now. Read the stickies, learn to use search, and go carefully through the first timer guides before doubling your post count please.

[cojak]

CUK Netiquette for newbies http://forums.contractoruk.com/busin...e-newbies.html

[Wanderer]

Welcome!

Option 1 is correct if you can charge the expenses back to the client. For example, the client asks you to work at a remote site and the client agrees to pay for travelling, accomodation, subsistance etc. In this case you put an expenses claim in to the client and they pay you the money (no tax/NI due). Big it up because it's money for nothing!

Option 2 is generally correct for umbrella/LTD company workers because they are claiming for expenses that they can't claim back from the client, but are allowable by the umbrella/LTD company rules. ie, commuting to work for up to 2 years (search for and understand the "24 month rule"), stationary, subsistance, brolly fees etc when working for the client. Minimise your costs because they are ultimately coming out of your pocket!

Generally speaking:

• Client pays expenses = you get 100% refunded.
• You claim expenses via LTD/Umbrella = you get the NI/Tax back on the expenses.
• Your company buys you something that is NOT an allowable expense = you pay PAYE/NI on it as a "benefit in kind" (same as if you were paid the money as salary so there is no point).

[malvolio]

Except getting the client to pay your expenses personally is a stupid idea, becuase that's a guaranteed IR35 fail. Invoice for the extra costs via YourCo or the Umbrella; you're supposed to be a business, behave like one.

[NotAllThere]

Except getting the client to pay your expenses personally is a stupid idea, becuase that's a guaranteed IR35 fail. Invoice for the extra costs via YourCo or the Umbrella; you're supposed to be a business, behave like one.

Mal - he's going through a brolly. IR35 game over.

[MarillionFan]

Of course they are. Who else is going to pay them?

Now. Read the stickies, learn to use search, and go carefully through the first timer guides before doubling your post count please.

Still not convinced jumping in and telling all new posters to read stickies and not bother us is a good idea.

If other posters wish to offer advice then good stuff, but do we have to jump on every new poster and not make them feel welcome?

[Wanderer]

Except getting the client to pay your expenses personally is a stupid idea, becuase that's a guaranteed IR35 fail. Invoice for the extra costs via YourCo or the Umbrella; you're supposed to be a business, behave like one.

For the original poster, (as NotAllThere points out) it doesn't matter with a brolly because you are in IR35, but generally speaking I think it's perfectly legitimate for a consultancy businesses to bill the client for a daily rate, plus expenses. I can't see how that's an IR35 pointer.

Imagine you work in London and the client decides they want you to go to (say) Geneva tonight, say over and be onsite at 8am tomorrow. Fights and hotel at such short notice would easily eat up your daily fee. There is no way a business is going to swallow that.

[TykeMerc]

If I'm reading things right my expenses are deducted first to avoid inclusion for tax purposes and then added back later.

This means that my expenses are paid out of my hourly rate (tax free) and not paid IN ADDITION to the hourly rate.

That is exactly how it works.

The only exception to this is where your contract specifically includes expenses repayable by the client. For instance if the client agrees to pay a mileage rate for you to visit other sites or to repay air fares or hotel costs.

[centurian]

Basically the OP has fallen into the classic umbrella marketing ploy of "and you get to claim all your travelling/subsistence expenses as well".

Yes you do - out of your own salary. You're still better off as you get the expenses before tax, but you are still the one paying them. You don't get to "claim them back off the taxman" through their "special dispensation measures".

Many a newbie contractor has fallen foul of the flashy website promising 80% returns only to be left scratching their heads when they get their first payment.

Sorry, but this is a harsh welcome to contracting. The street isn't paved in gold.