Reply to: Understanding contractor pay

[escapeUK]

But only if you are outside IR35 remember

We are all outside Lisa, if we want to be (and refuse to work for anyone who trys to put us inside it)

[LisaContractorUmbrella]

Not via umbrella paying two lots of NI anyway.

Via ltd company with no NI at all and being paid to collect VAT is a different story!

But only if you are outside IR35 remember

[ASB]

Speculative example.

Income £1,000; "own" expenses £200, Brolly Fee £25;

The ER's NI is 12.8% on everything above the primary threshold (110 pw). The total of these combined is 775 (i.e. what's left after exs and fee).

(wages - 110) * .128 [er's ni] + wages = 775

Er's NI = 75.46 wages = 699.54. (i.e. Total 775.00)

Gross wages 699.54

Tax free 124.52 (6475 pa)
Taxable 575.02

Tax (20%) = 115

Ni free = 110
Ni able = 589.54

NI (11%) = 64.85

Net wage = 699.54 - 115.00 - 64.85 = 519.69

Of course you can't add the 200 quid back in because you've already spent that on the expenses. But at least you get the benefit of the 200 before suffering deductions on it.

[Edit, I've done those weekly, to show the principle. Of course, some of the expenses may potentially be chargeable to the client - dependant upon the contract]

[cojak]

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?

Hopefully the new site's FAQ section will resolve this.

[malvolio]

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

Picky picky...

[VectraMan]

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.

In my experience (and I assume this is the norm), clients will pay you for expenses such as that example, but the day to day getting to their office is your problem.

I think we're a little unfair on the umbrellas. I did my first 4 months with an umbrella, and I have to admit to finding the expenses and NI very confusing. But I was never mislead; it was my fault for not understanding it properly.

[centurian]

Via ltd company with no NI at all and being paid to collect VAT is a different story!

At least until the Tories get in and "simplify and clarify" it

Then we'll be begging for the Labour uncertain nature of it, which at least we have come to understand how to navigate.

[escapeUK]

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

Not via umbrella paying two lots of NI anyway.

Via ltd company with no NI at all and being paid to collect VAT is a different story!

[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.

[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.

[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.

[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?

[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.

[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.

[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).