Reply to: 24 month rule and multiple contracts with different jobs (same client)

[LisaContractorUmbrella]

Can I just point out here that not all brollies should be tarred with the same brush

[jmo21]

I'd be surprised if thats true wanderer, the only people who think that umbrellas pay their expenses are first timers or people who should never be contracting. most people realise how it works and if they don't then they should be asking.

It's only the first timers they catch by being vague. 2nd time with a brolly, I'm pretty sure even the idiots have learned.

[Foxy Stoat]

I agree with Wanderer, I've been with a couple of umbrellas over the last few years, and they all gave me this impression. They don't communicate the actualities very well.

Anyhow thanks to everyone for the help, working out the sums it's not a huge amount now, so I'll liaise with my umbrella and will get things sorted. Thanks for your kind advice.

[moggy]

What matters is the location. Working for multiple clients doesn't reset the clock, it's only moving location that does. Also understand the 40% rule.



Funny how umbrellas give people that impression that all their expenses are "paid for" by the umbrella when actually they just reduce your taxable income...

I'd be surprised if thats true wanderer, the only people who think that umbrellas pay their expenses are first timers or people who should never be contracting. most people realise how it works and if they don't then they should be asking.

[Wanderer]

But none of the examples apply to my situation, it is somewhat unique. The only real semi-constant is the location I travel to (which by the way, is not in London), and even then it was not a certainty I would becoming back. That location was my temporary workplace, I left it, got a new job and now this is once again my temporary location, on a brand new 12 month contract, with a subsidiary company.

What matters is the location. Working for multiple clients doesn't reset the clock, it's only moving location that does. Also understand the 40% rule.

Okay look, have I finally got this right in that I only owe on the tax of the erroneous expenses?

The way my umbrella company literature reads, it sounds like the whole thing is tax. But if not, then I only owe a couple of hundred. Can I not just ask my umbrella company to take it out of my next month's pay packet, and then that's me sorted?

Funny how umbrellas give people that impression that all their expenses are "paid for" by the umbrella when actually they just reduce your taxable income...

[malvolio]

Okay look, have I finally got this right in that I only owe on the tax of the erroneous expenses? If so, what is the percentage? Twenty percent? Thirty percent?

The way my umbrella company literature reads, it sounds like the whole thing is tax. But if not, then I only owe a couple of hundred. Can I not just ask my umbrella company to take it out of my next month's pay packet, and then that's me sorted?

I know I'm going to regret this...

The way unbrellas work it is that they effectively deduct your cliameable expenses from your gross "salary" (i.e. your rate x time worked), calculate the tax due on that balance then deduct that amount from your gross. A bit left-handed but it keeps the sums simple. If you've mis-claimed you really neeed to submit an SAR in January to declare your earnings accurately and Hector will adjust your following year's tax code to adjust it out or send you a bill.

It's not really your umbrella's problem to resolve, but you could always try asking them. If, as it seems, you're paying them more than I pay my accountant, they ought to be able to offer some kind of assistance.

[Foxy Stoat]

Okay look, have I finally got this right in that I only owe on the tax of the erroneous expenses? If so, what is the percentage? Twenty percent? Thirty percent?

The way my umbrella company literature reads, it sounds like the whole thing is tax. But if not, then I only owe a couple of hundred. Can I not just ask my umbrella company to take it out of my next month's pay packet, and then that's me sorted?

[centurian]

May I suggest that you move umbrella companies? Any company that is encouraging you to claim expenses to which you are not entitled is advocating tax avoidance

Nothing wrong with advocating tax avoidance, but claiming something which you are not entitled to is tax evasion, surely.

Granted, HMRC may be unlikely to launch a criminal prosecution as the OP would protest ignorance, but surely it still amounts to evasion.

[Old Greg]

May I suggest that you move umbrella companies? Any company that is encouraging you to claim expenses to which you are not entitled is advocating tax avoidance

But not to an umbrella that doesn't know the difference between avoidance and evasion.

I think the OP is having some fun with us.

[LisaContractorUmbrella]

That's a bit strong isn't it mate? I haven't wilfully tried to engage in 'tax evasion'. I've simply carried on doing exactly what I've been doing for the last 22 months, completely sanctioned by my umbrella company. The only reason I'm starting to ask questions about it, is because I read something about a '24 month rule' randomly on another website. No mention of this has been made by my umbrella company at any point. In fact they go out of their way to get you to constantly field expenses. They even tell you to try and put new laptops through, if you can!

Also what about 'my' expectation? I could say well actually no, I personally do not expect to stay longer than 24 months, regardless of contract length. That's actually quite true, because I've been wanting to leave my job for a few months now.

May I suggest that you move umbrella companies? Any company that is encouraging you to claim expenses to which you are not entitled is advocating tax avoidance

[malvolio]

Hang on, 'tax on the expenses'? So it's not the full amount then? So say, if I put through £550 a month, how much of that should have gone to HMRC?

And then how do I subsequently put through the 'un-taxable' part of the expense in later months?

Oh FFS...

If you haven't grasped the absolute basic rule, why the hell do you think you're qualified to argue the point? Where do you thik the money for your expenses comes from? I'm sure as hell not paying for your train fares, nor is your client.

Is the expense taxable as a personal BIK or not, is the question. Fail the 24 month rule and it is, so is treated as any other earned income and taxed in full. The easy way to do that through an umbrella company is simply not to claim the expense in the first place - which is what you should be doing.

[mudskipper]

Now my question is, where does this leave me with regard to the 24 month rule?

I think your question has been answered. You're undoubtedly caught by it. You now appear to be trying to justify why you shouldn't be - what do you want us to do? Say, "yes, of course it's unreasonable, you go ahead and claim", then show HMRC this thread when they come a-knocking? It's entirely up to you and your attitude to tax evasion and risk of being caught as to whether you continue to claim. Personally for the sake of a few hundred quid I'd rather sleep easy. Don't get stroppy with us - it ain't our rule.

[Foxy Stoat]

So, I've been worried that NOT claiming expenses means I would be losing £550 a month. But if it is worked out as being the TAX on that, then have I got this whole thing completely wrong then? I was panicking that my expenses is about a whole THIRD of my salary, that I would suddenly be losing!!!

[Foxy Stoat]

An umbrella works as follows (we'll ignore VAT as its irrelevant and I've not calculated the figures just put in very vague values for convenience).
Previously
Invoice £4750
Expenses £550
their fee £100

Sub total £4100
NI employers £410
NI employees £410
Income Tax £1000
Left as income £2300

Payment to you £2280 (+ £550 expenses).

Without travel expenses

Invoice £4750
Expenses £0
their fee £100

Sub total £4650
NI employers £465
NI employees £465
Income Tax £1100
Left as income £2620

Payment to you £2620 (no expenses).

These aren't accurate figures by the way just something to show what the difference is. Expenses don't save you as much as you think they merely save you the tax you would otherwise have had to have paid on the money if HMRC had treated it as income.

Okay so this is very interesting. I've added up my full expenses since I started the new 12 month contract; it comes to £2344. Of that, how much would go to HMRC?

I was thinking it would be the whole thing, but if it's only a small proportion, well, that sounds pretty good to me! Wouldn't mind sorting it out then.

[Foxy Stoat]

Ignore all the other posters cause they are not giving you the answer you clearly want to hear. Forget all the correct advice they are giving you. Just go for it,fill your boots and go for it. The only advice you really need is not to bend down for the soap after you investigation....

I'm not ignoring it, in fact I'm asking for more clarity. What is 'tax on the expenses'? So HMRC only gets a certain percentage of that?