umbrella taxed on re-chargeable client expenses

[VectraMan]

No - if it is rechargeable your taxable income won't be £100 more, the rehcargeable expenses do not form part of your taxable income. It works the same as for a permie, they claim their expenses and when they are received through the payroll they are tax exempt. Same through a brolly.

Okay, £1000 - £100 expense = £900 taxable income. If rechargable, it's £1000 - £100 expense + £100 reimbursment = £1000 taxable income. Unless I'm being very thick, £1000 is £100 more than £900.

Essentially you treat the reimbursment by the client as part of the sale, and what you've spent is reimbursed by the umbrella.

I think we're probably arguing the same thing. What you can't do is treat the £100 as non-taxable income AND claim another £100 in expenses from the umbrella.

And as I said above, the two don't have to be the same amount. I've been in the situation where the client reimbursed MyCo. Ltd. 40p per mile, but as I'd already passed the 10,000 mile limit MyCo. Ltd. reimbursed me for 25p per mile. If rechargable expenses are automatically non-taxable income, where does the 15p per mile difference go? Answer: if I was paid it, I would be taxed on it.

And nobody's even mentioned VAT yet.

[WindyAnna]

Yep. But my point is it doesn't matter whether they're rechargable expenses or not. If it's not rechargable, the £100 is paid to the contractor by the umbrella and your taxable income is reduced by £100. if it's recharagable, the latter doesn't happen, and your taxable income is £100 more.

Unless the umbrella just doesn't handle any kind of expenses (which seems unlikely), they're doing the right thing.

No - if it is rechargeable your taxable income won't be £100 more, the rehcargeable expenses do not form part of your taxable income. It works the same as for a permie, they claim their expenses and when they are received through the payroll they are tax exempt. Same through a brolly.

[Blimey]

MarkOD That's what I thought should happen!!

I am jumping replies here, so sorry if it gets confusing.

Do you think this has anything to do with the fact my agency sent this through separately to my daily rate invoice?

[Blimey]

Many thanks for your replies. I'm happy to name and shame but don't want this thread erased. Fraid I'm still confused! Frankly, it's a lot less complicated doing high dependency obstetric care which is what I used to do. At this company, other contractors who are with (other) umbrellas get their client rechargeable expenses back in full as their agencies have a process for this, I've also seen umbrellas state they provide this service on the internet - so how can they be acting illegally?

Just to be clear, I am talking about money spent on taxis, hotels and train fares - how is that my income? I am an employee of my umbrella.
I do pass the usual schedule E expenses through them but never pass the same expenses twice.

One colleague has suggested taking them to the small claims court. Any thoughts?

The original receipts lie with the agency now. I suppose what I need is instructions on how to recoup as much as possible. In return, if anyone needs obstetric advice I'd be happy to help!

[MarkOD]

In reality the way it would be worked out would be.

your invoice amount £1000 (5 days at 200 a day) + £100 (recharge)

your umbrella should invoice for £1100

£1100 comes back from your agency

Umbrella work out tax, NI etc based on the £1000 and simply add the £100 to your net return on the bottom

HTH

[WindyAnna]

Maybe I've missed something here - my understanding of "re-chargeable" expenses is where there is an agreement that if the contractor needs to pay for accommodation, rail ticket etc, they will be re-imbursed by the client.

If this is the case then they should be repaid in full with no deductions:

Contractor pays for rail ticket which costs £100
Umbrella invoice agency for ticket
Agency invoice client for £100
Agency pay umbrella £100
Umbrella pay contractor £100

That's how it has always worked for me as well. These should be the only expenses that you claim for that time so you can't "double dip" for your rechargeables plus your usual expenses. As long as you don't 'claim' any expenses from the umbrella to cover the same expenses that you are recharging the client it should not be taxed.

I did work for one company (as a permie at the time) who paid contractors their expenses direct but never seen it since.

[VectraMan]

Maybe I've missed something here - my understanding of "re-chargeable" expenses is where there is an agreement that if the contractor needs to pay for accommodation, rail ticket etc, they will be re-imbursed by the client.

If this is the case then they should be repaid in full with no deductions:

Contractor pays for rail ticket which costs £100
Umbrella invoice agency for ticket
Agency invoice client for £100
Agency pay umbrella £100
Umbrella pay contractor £100

Yep. But my point is it doesn't matter whether they're rechargable expenses or not. If it's not rechargable, the £100 is paid to the contractor by the umbrella and your taxable income is reduced by £100. if it's recharagable, the latter doesn't happen, and your taxable income is £100 more.

Unless the umbrella just doesn't handle any kind of expenses (which seems unlikely), they're doing the right thing.

[Moscow Mule]

Maybe I've missed something here - my understanding of "re-chargeable" expenses is where there is an agreement that if the contractor needs to pay for accommodation, rail ticket etc, they will be re-imbursed by the client.

If this is the case then they should be repaid in full with no deductions:

Contractor pays for rail ticket which costs £100
Umbrella invoice agency for ticket
Agency invoice client for £100
Agency pay umbrella £100
Umbrella pay contractor £100

That's how it worked with NoLongerLimited.

[brollyman]

Maybe I've missed something here - my understanding of "re-chargeable" expenses is where there is an agreement that if the contractor needs to pay for accommodation, rail ticket etc, they will be re-imbursed by the client.

If this is the case then they should be repaid in full with no deductions:

Contractor pays for rail ticket which costs £100
Umbrella invoice agency for ticket
Agency invoice client for £100
Agency pay umbrella £100
Umbrella pay contractor £100

[VectraMan]

To use the example above, you've been taxed at 100p a mile, when you should only have paid tax on 60p a mile. In such a situation, the IR will give you back the tax on the 40p.

That assumes the umbrella isn't handling any kind of expenses. If they are, then you should have got the 40p per mile whether client rechargable or not, and only paid tax on the 60p.

[NotAllThere]

To use the example above, you've been taxed at 100p a mile, when you should only have paid tax on 60p a mile. In such a situation, the IR will give you back the tax on the 40p.

[ASB]

Put them on your tax return at the end of the year as an expense. Taxman allows them, net result is your taxable income is reduced by the amount of the expenses and you get the tax back.

[VectraMan]

You should be taxed for client rechargable expenses; it's part of your income.

What you shouldn't be taxed on is your expenses. The two aren't necessarily the same: you could get 40p per mile, but the client pays 100p per mile. The difference is income, so should be taxed.

[brollyman]

I am with an umbrella company and have been for five months. I have had tax deducted from £500 + of client re-chargeable expenses. For the life of me I can't understand why?! Does anyone know?

The Umbrella just keep telling me they are acting strictly within the law and that they have no process for dealing with client rechargeable expenses. My recruitment agency tell me this is the first time they have come accross this.


Ugh!

If they can't deal with rechargeable expenses, how can they call themselves an umbrella. You should only pay tax on money you've earned, not on money you've spent!

Rechargeable expenses should be paid in full with no deductions...

Any chance of a name and shame??

[Blimey]

I am with an umbrella company and have been for five months. I have had tax deducted from £500 + of client re-chargeable expenses. For the life of me I can't understand why?! Does anyone know?

The Umbrella just keep telling me they are acting strictly within the law and that they have no process for dealing with client rechargeable expenses. My recruitment agency tell me this is the first time they have come accross this.

I will be leaving this umbrella for another with better services tout suite. But I've got £300 worth of expenses which are likely to go the same way as I believe I have to put them through my current brolly as the money was spent during my time with them.

No smart comments about umbrella's v's ltd. I have considered it but I'm about to renew for 3 months - 4weeks of which I will be away - so I don't think I will be financially better off. My field is so specialised that there's not a lot of contract work around.

Ugh!