Reply to: trying to get my head round expenses.

[krisby]

Hi Krisby,

I'm the branch manager at ContractorUmbrella.

The bold text above is what the PAYE contributions are calculated against i.e. your taxable income.

Therefore your take home pay is gross pay minus PAYE tax (based on the calculation above) minus NI contributions minus our margin

In your example, tax is calculated on £777.5 but the tax is deducted from £873.50

I understand your Account Manager has been in contact regarding your expenses and perhaps the confusion is coming from the layout of our payslips - this has been explained in his email.



I guarantee this is not the case!

Thanks for that, Dan had replied and I've now done the maths and seen how it all works out and I understand it.
The problem is two other guys I work with didn't think it was right but their circumstances are slightly different I think, causing me to doubt it too, but now I can see how the expenses jimmy back in to the final figure that is crystal clear.

[DaveB]

This came up back in July when HMRC issued a statement on Pay Day by Pay Day payment models.

Gory details here including a link to the HMRC staement.

http://forums.contractoruk.com/umbre...-umbrella.html

[russcontractorumbrella]

Ah, no it doesn't make sense.

I see this:

1000 - 96 (expenses) - £100 (NI EMplr) - £26.50 (their fees) = 777.5. My PAYE and NI is then calculated on that amount and I receive the balance. So basically, my contract rate, less expenses (mine and theirs), tax paid on that, I get the rest. As you would expect. I don't see the expenses being put back on anywhere, so I'm still only seeing my £96 expense claim hitting one side of the balance sheet.

Again, it might just be me reading it all wrong, so I will wait and see what they come back with.

Hi Krisby,

I'm the branch manager at ContractorUmbrella.

The bold text above is what the PAYE contributions are calculated against i.e. your taxable income.

Therefore your take home pay is gross pay minus PAYE tax (based on the calculation above) minus NI contributions minus our margin

In your example, tax is calculated on £777.5 but the tax is deducted from £873.50

I understand your Account Manager has been in contact regarding your expenses and perhaps the confusion is coming from the layout of our payslips - this has been explained in his email.

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

I guarantee this is not the case!

[Martin at NixonWilliams]

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

Hi Krisby

I'm not sure if your Umbrella company has explained things to you but i'm more than happy to review your payslip and try and make sense of it for you if you are still confused.

Just drop me a PM or email (martin at nixonwilliams.com).

Martin

[krisby]

Hmm, I would have expected to see the tax calculated on 777.5, then the tax being deducted from 873.5. Yep, best to wait and see what they say. I'm no accountant and it's been a few years since I used an umbrella company.

yeah, same here, if not actually being paid separately. But just waiting for their reply.

[Bunk]

Ah, no it doesn't make sense.

I see this:

1000 - 96 (expenses) - £100 (NI EMplr) - £26.50 (their fees) = 777.5. My PAYE and NI is then calculated on that amount and I receive the balance. So basically, my contract rate, less expenses (mine and theirs), tax paid on that, I get the rest. As you would expect. I don't see the expenses being put back on anywhere, so I'm still only seeing my £96 expense claim hitting one side of the balance sheet.

Again, it might just be me reading it all wrong, so I will wait and see what they come back with.

Hmm, I would have expected to see the tax calculated on 777.5, then the tax being deducted from 873.5. Yep, best to wait and see what they say. I'm no accountant and it's been a few years since I used an umbrella company.

[krisby]

I think I see what's happening, they're only taking the expenses off for the tax calculation (they're not actually deducting it from your gross) so in this example, £1000, tax calculated on £900 = eg £450, £1000 - £450 = £550. It works out the same as taking the expenses off at the beginning, doing the tax and then adding them on at the end. Does that make sense?

Ah, no it doesn't make sense.

I see this:

1000 - 96 (expenses) - £100 (NI EMplr) - £26.50 (their fees) = 777.5. My PAYE and NI is then calculated on that amount and I receive the balance. So basically, my contract rate, less expenses (mine and theirs), tax paid on that, I get the rest. As you would expect. I don't see the expenses being put back on anywhere, so I'm still only seeing my £96 expense claim hitting one side of the balance sheet.

Again, it might just be me reading it all wrong, so I will wait and see what they come back with.

[Bunk]

this was their excuse first time I asked about it:

Non-Chargeable expenses - These are expenses that the HMRC allows you to claim. Things like mileage and subsistence. These are NOT reimbursed in cash money. The total of these expenses on an timesheet get taken off your taxable income. So, for example, if your timesheet was worth £1000 and you had expenses of £100, the income that you were taxed on would be £900 instead of £1000.

Which seemed fair, until I worked out that my earnings are effectively reduced and it is not added back on the other side of the balance sheet.

I think I see what's happening, they're only taking the expenses off for the tax calculation (they're not actually deducting it from your gross) so in this example, £1000, tax calculated on £900 = eg £450, £1000 - £450 = £550. It works out the same as taking the expenses off at the beginning, doing the tax and then adding them on at the end. Does that make sense?

[krisby]

this was their excuse first time I asked about it:

Non-Chargeable expenses - These are expenses that the HMRC allows you to claim. Things like mileage and subsistence. These are NOT reimbursed in cash money. The total of these expenses on an timesheet get taken off your taxable income. So, for example, if your timesheet was worth £1000 and you had expenses of £100, the income that you were taxed on would be £900 instead of £1000.

Which seemed fair, until I worked out that my earnings are effectively reduced and it is not added back on the other side of the balance sheet.

[krisby]

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.

Exactly as I thought, but then when they gave me their explanation I accepted it. But it has been playing on my mind, until today, I had to sort it out, because the math just wasn't right.

Thanks, that confirms it then.

I have queried it with them and hope to get an answer soon, if they don't give me the answer I want I'll tell terminate the contract.

[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.

[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.

[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]

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.

[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.