Expenses -An Umbrella Employee's Guide
How will the amount of expenses I incur affect my umbrella pay?
During the course of your working contract you are likely to incur costs that relate to it. As a contractor, all you need to do is pay for these either by cash or by the other usual means, but the essential part is that you need to retain your receipts. These receipts will then need to be sent to us by post or conveniently for you, scanned an uploaded to our website, and we will pick them up from there.
For illustration purposes we will use an example to show how expenses can affect your take home pay.
Legitimate expenses claims do not get taxed. If you earned, for example, £1000 for a week, and you incurred expenses of £200, then the £200 will not be taxed, and the remaining £800 will be subject to PAYE Tax, National Insurance (NI) etc, and this would mean that you will be taking more of your working contract value home. Obviously, if you did not have any expenses for that week, then the whole contract amount of £1000 is subjected to Tax and NI.
Please note that you must retain and send in receipts of all expenses that you would like to claim for. Failing to do this will open you up to penalties and/or fines from HMRC in the future.
Listed below is a brief online of allowable business expenses:
- Cost of Accommodation - this includes reasonable costs for staying at a bed & breakfast or hotel, and can include meals you have to purchase while staying at the hotel or bed & breakfast. The word reasonable in this context is not well defined, but your costs should not be an exaggeration.
- Clothing Costs - this can include uniform that you need to purchase specifically for the work you need to carry out. Ordinary clothes are excluded.
- Cost of Meals - meal purchases during your time away from your normal place of work can be claimed on a daily basis, but the amount you claim for must equal the actual cost of the relevant meals
- Pension - while this is not classed as an expense, strictly, we have placed this on the list because it has similar effects to expenses when it comes to payroll. This is one of the last remaining tax breaks that is open to contractors. Making a pension contribution saves you tax that would otherwise have been payable on it, and your NI contributions would also be lower as a result. For example, Tax relief on each £100 you contribute to a pension will only cost you as much as £52 as the HMRC will fork out the remaining £48. This,however, depends entirely on your personal circumstances.
- Training Costs - again this expense must be wholly relevant to the contract you are working on. Costs can include training equipment too.
- Travelling Costs - within a Tax year, you can claim £0.45 per mile for a total mileage under 10,000 miles, and anything in excess of that is at £0.25 per mile. As with other expenses, you will need to provide receipts for purchases of petrol for your vehicle. Costs associated with travelling to an interview can not be used as an allowable expense unfortunately.