Claiming for expenses?

Question

I have just moved to a new company. We can put expenses claim forms in for mobile phone use, home printing, Fuel cost etc.

In my contract it say's. "Please note that expenses are not repaid as extra money on top of the amount received from your agency. Instead we calculate the amount that can be offset against your income contribution to reduce payroll and you see the result as an increase in your take home pay."

Can any one explain this in a simpler form?

Thanks

Answer 1

Do you work for an end client through an agency known as an "umbrella company" by any chance?

Regardless of the answer to that, if you are contractually entitled to a set salary of say £1000 per month, but incur expenditure on legitimate business expense of say £100 in a month, then you should recieve an amount equivalent to the £1,000 after deduction of tax and NI (your net pay), which is around £860.

In addition to that you should also get the £100 expenses reimbursed without deduction of any tax or NI as long as your employer has an agreement with HMRC allowing the tax/NI free reimbursement of those items claimed (known as a dispensation).  That should give you a total of £930 net pay.

If no such agreement is made, then strictly the expenses should be subject to tax and NI (that would give you a total of £900 net), and you would claim the tax back on your tax return.  But most employers still pay the amounts they know are allowable for tax without deduction even if they have no dispensation.

Continuing with the above example, it sounds as though your employer are taking the £1,100 you are owed and then charging the £900 (£1,000-£100) to tax and NI.

By deducting the £100 from your salary, your take home would be about £760, so even if they pay you back the £100 expenses incurred, you're still out of pocket.

Your employer isn't of course, he's just done you out of £100.  Your probably not too happy about that.  The tax man isn't happy either, because your employer has done him out of his cut by about £30.

You asked for the contract terminology put in simpler form.  Simply put then, you're being screwed.

Those figures are examples, but the bigger the numbers, the bigger the con.

Trading Standards use a phrase which is appropriate here; if something looks to good to be true, then it probably is.

If I'm right about it being an umbrella company, you're welcome to drop me an e-mail if you want to know more and/or get some specific figures.

Answer 2

It sounds like they are doing a salary offset.  Basically it works like this:

Let us say that you earn £100. Normally you would pay tax on the whole amount, and then pay your expenses out of that. What they are doing is saying "you have £100. If you have spent £10 on allowable expenses, we will give you that £10, but now your salary is only £90, and you only pay tax on that £90." Less tax and national insurance paid by you. Less national insurance paid by them.

Two things here.

Firstly, they are not actually reimbursing you for your expenses. They are simply giving you the tax back on it. So if you spent £10 on expenses, they are not giving you £10 back - they are giving you the equivalent of £2.

This is a bad deal for you because the company is not actually reimbursing you for your expenses!!

Secondly, depending on how much you earn, you may have to watch out for the minimum wage.

If I was you I'd be annoyed. If I was HMRC I'd e very suspicious.  Much as I dislike HMRC and doubt their competence, and much as I hate paying tax, I have a rule of thumb called the "taking the p***" rule, which says that if it sounds dodgy, it probably is.

Answer 3

In a nutshell I *think* this means that you will pay less tax.

Your expenses outgoings will be offset against the income tax that gets deducted off your monthly pay cheque. So your before-tax pay will be the same but your after-tax pay will be higher to reflect the expenses.

I've never been paid expenses this way but I believe it can work that way.