trying to get my head round expenses.

[krisby]

I understand the benefits of having expenses taken off my earnings before I start paying tax, but there is one I can't get my head around.

I have travel and parking expenses deducted every week, but of course not refunded, it is only taken off my earnings to reduce the tax I pay. Where does it go though? It is my money, so it is being taken off my earnings but going nowhere, I don't get it, HMRC don't get it, brolly co don't get it, so surely there is no point me claiming for it.

Obviously brolly fees and Emplr NI comes off too, thus reducing my taxable income, but taking off £100 of motor expenses a week to pay £50 less tax is backward, or am I missing something here?

I can't seem to make my brolly co see my point.

Thanks

[b0redom]

Eh? You spend the money from your own pocket, so for legitimate expenses it's paid directly from the company (Ltd or umbrella) directly to you without you paying PAYE or Corp TAX.

Expenses aren't just free money, they come to you from your earnings, but you just don't pay tax on them.

[Danielsjdaccountancy]

Eh? You spend the money from your own pocket, so for legitimate expenses it's paid directly from the company (Ltd or umbrella) directly to you without you paying PAYE or Corp TAX.

Expenses aren't just free money, they come to you from your earnings, but you just don't pay tax on them.

Agree with b0redom here. It’s just another way of extracting money from your company without paying taxes, in essence increasing your take home.

[krisby]

I know its not free money. But what I mean is I have say £2000pw. brolly take off my £100 expenses that I have claimed, - their fee, - NI, leaves my taxable income.

If I was a regular employee, my expenses would be given back to me, and taxed, which I don't mind. But in this case, I am claiming for expenses that immediately reduce my earnings by £100 a week, but I don't see any of it, but my brolly use it to reduce my tax. That just seems odd, why would I reduce my earnings, I am having to pay the expenses out of my pocket, and it is taken off my earnings, so it is like I am actually paying £200 for my expenses, but get a few quid more in after tax payments, but not enough to make up for the shortfall.

As I say, I'm not sure I am explaining it right.

[Bunk]

I know its not free money. But what I mean is I have say £2000pw. brolly take off my £100 expenses that I have claimed, - their fee, - NI, leaves my taxable income.

If I was a regular employee, my expenses would be given back to me, and taxed, which I don't mind. But in this case, I am claiming for expenses that immediately reduce my earnings by £100 a week, but I don't see any of it, but my brolly use it to reduce my tax. That just seems odd, why would I reduce my earnings, I am having to pay the expenses out of my pocket, and it is taken off my earnings, so it is like I am actually paying £200 for my expenses, but get a few quid more in after tax payments, but not enough to make up for the shortfall.

As I say, I'm not sure I am explaining it right.

They should be added on again after tax is deducted. So in your case, you pay tax on £1900 leaving maybe £1200, then the £100 expenses should be added back on meaning you take home £1300. Those figures aren't right but that's how it should work.

[krisby]

Agree with b0redom here. It’s just another way of extracting money from your company without paying taxes, in essence increasing your take home.

Thats what I thought too, but the sums don't add up. By claiming the £100 expenses I appear to be losing out by about £30 if I didn't claim my travel expenses.

Put it this way, if my agency physically gave me £2000, then I paid my brolly their feees and NI, I paid HMRC the tax and my NI, who would I pay my £100 travel expenses to? I know they reduce my tax but where does it go? vaporized? I don't get it back (as I would if I were a regular employee), so it just disappears, becomes an intangible £100, which concerns me and made me wonder am I doing the best thing in the short and long term.
But I might just be looking at it from the wrong angle because I have been so used to being on PAYE and paying a little more tax on the occasions I claimed and received expenses.

[krisby]

They should be added on again after tax is deducted. So in your case, you pay tax on £1900 leaving maybe £1200, then the £100 expenses should be added back on meaning you take home £1300. Those figures aren't right but that's how it should work.

That was what I thought too, and had been doing my calculations in that way, then when I got my first pay minus the expenses, I asked and they said, oh no, we don't reimburse you the expenses, we only use it to reduce the tax you pay. Hence my confusion, where is my £100 going? nowhere it seems.

Perhaps I need to raise it with them again as it doesn't seem right in my head, but I thought I was missing something critical.

[Bunk]

That was what I thought too, and had been doing my calculations in that way, then when I got my first pay minus the expenses, I asked and they said, oh no, we don't reimburse you the expenses, we only use it to reduce the tax you pay. Hence my confusion, where is my £100 going? nowhere it seems.

Perhaps I need to raise it with them again as it doesn't seem right in my head, but I thought I was missing something critical.

Sounds like they're pocketing it then. Which umbrella company is it?

[krisby]

Sounds like they're pocketing it then. Which umbrella company is it?

Contractor Umbrella, I'll ask them again about it.
Thanks for the help.

[Zoiderman]

Contractor Umbrella, I'll ask them again about it.
Thanks for the help.

The £100 is expenses, and should be paid to you, without tax.

If you're not getting it, then you're having your pants pulled down. It really is as simple as that. I do 750 miles a week. All of my expenses come to me, exactly as it should do.