Umbrella pay–non-taxable expenses–Expert advice please

[MPI]

Hi , I have seen many confusing info around this subject in the forum so hoping to get some clear cut clarification . Ok , here is my case :

I will be extending in summer 2012 , my umbrella company currently allows me to claim some daily food allowance as well as travel ( tube travel ) . These expense are not reimbursed by employer . My umbrella takes them off my gross pay first , applies tax and NI to my gross pay and then adds them back to my take-home pay . So basically this part of my income is not taxed.

Seems many Umbrella’s are into this habit to save their customers some Tax and NI . I trust this is lawful or is it not?! Is this some grey area in the tax system?! My umbrella says these are ‘schedule expenses’ as HMRC calls them and they are ok as along as 100% necessary to fulfil your contract.
Assuming that they are legal, why many threads in this forum warned about these expenses?

In my case, these expense are really small share, I’d say around 3-5% of my salary. Claiming these expenses or stopping them altogether will not have any effect on my points for my salary band, and I’ll get enough points regardless . These expenses are not uplifting gross pays anyway , ( subtract first and add later ) , they just tax savers.

So what do you reckon , shall I stop them? ( please say No )
Many thanks

[ukuku]

In the same situation and I stopped mine.

[imranhameed2000]

i get £250 as travel and sunsisence allowence. this is aded in my total gross pay and then deducted from it. i have the letter from emplyer saying this is part of remuneration package and the allowence is non taxable.

this is not a reimbursed money.

it does also adds into my total gross pay. then it is deducted from the pay. meaning i am getting nothing but shows in my pay slip and total gross pay.

can i use this as my earnings as it is included in my total gross pay.

[MPI]

ok so we all in a same boat.

Imran : so you are not actually 'paid' any allowances , this is again some way-around to pay less tax. Basically you have been given permission to exclude that part of your salary from tax.

I know for fact that these allowances are not counted towards your salary , so you can not add them up to your gross pay and claim points for them . ( it's explicit on Tier 1 guidance about contractual allowances )

Lets wait & see if any veterans here have answers for us.

[Sushil-ACCA]

all non taxable incme r not considered by HO

so dont add in yr income while applying

[imranhameed2000]

thanks for the reply....
May i know that where in the guidence policy of home office it says that non-taxable are not allowed......

[sudhir_m]

Hi,I too am on the same boat,My umberala company salary slip shows as
My basic pay as per uk minimum wage (£5.3Per hour)
And holiday pay (0.72Perhour)
and all rest amount is paid in 'profit Bonus'
and all these 3 are calculated as gross pay.
is this ok for extension

[imranhameed2000]

@sudhir_m: Please tell me if you initially got your Tier 1 on the salary format you have mentioned.

[MPI]

all non taxable incme r not considered by HO

so dont add in yr income while applying

so ok , what I gather from Sushil's response is .. I should not add my expense claims to my gross pay . My gross pay doesn't include expenses anyway.

I guess I should be ok then , I don't have to stop my expense claims .

So are you guys , but well obviously if the taxable part of your salary does not get you enough point for extension that's different thing.

In my case , expenses are roughly 80 pounds a month , so makes it max to 1000 a year which doesn't really change my salary band. but 250 a month could be worrying I guess , as it may shift you up or down in salary band.

[imranhameed2000]

just spoken to my solicitor who is very well reputed in London. he has seen my slip and told me that the allowence will be counted as it is added in the gross pay.......i also have letter from employer saying that this forms part of my remunerationp package and these are not reimbursed money.....

although the allownce is non-taxable but due to its addition in the total gross pay clearly in my salary slip it will be counted.....

also the letter from emplyer will be helpfull..


ANY COMMENTS PLEASE......

[sudhir_m]

@sudhir_m: Please tell me if you initially got your Tier 1 on the salary format you have mentioned.

I got my initiall teir 1 from india,I was a perm employe there
now i am confused with this kind of salary slip.please advise

[happyguy82]

Guys this is very simple. If you claim allowance through your umbrella company, that amount comes out of your taxable pay so you won't be able to claim points for that because it then becomes non taxable.

The amount that you can claim is only the gross salary before employee NI and PAYE tax deductions.

It says so in the Tier-1 General policy guideline that any taxable income can be claimed for the points.

[MPI]

Imran : I think you should be ok. this is what UKBA says :

Earnings
13. Earnings include, but are not limited to:

(a) salaries (includes full-time, part-time and bonuses),

(b) earnings derived through self-employment,

(c) earnings derived through business activities,

(d) statutory and contractual maternity pay, statutory and contractual adoption pay,

(e) allowances (such as accommodation, schooling or car allowances) which form part of an applicant's remuneration package,
(f) dividends from investments, where it is a company in which the applicant is active in the day-to-day management, or where the applicant receives the dividend as part of their remuneration package,

....
16. Earnings do not include unearned sources of income, such as:

(a) allowances (such as accommodation, schooling or car allowances) which are paid as reimbursement for monies the applicant has previously paid,

from : http://www.ukba.homeoffice.gov.uk/polic ... appendixa/

So that's your EARNED money .

[Sushil-ACCA]

Guys this is very simple. If you claim allowance through your umbrella company, that amount comes out of your taxable pay so you won't be able to claim points for that because it then becomes non taxable.

The amount that you can claim is only the gross salary before employee NI and PAYE tax deductions.

It says so in the Tier-1 General policy guideline that any taxable income can be claimed for the points.

correct reply

we can go on this but non taxable (reimbursement r not part of ho claculation ) r not taken otherwise no oe wil pay tax and all will be on t1

[t1s2010]

EDIT: skipped #16 in earlier post. However, keeping as is.

same source, go to #16:

http://www.ukba.homeoffice.gov.uk/polic ... appendixa/

16. Earnings do not include unearned sources of income, such as:

(a) allowances (such as accommodation, schooling or car allowances) which are paid as reimbursement for monies the applicant has previously paid,

(b) dividends from investments, unless it is a company in which the applicant is active in the day-to-day management, or unless the applicant receives the dividend as part of their remuneration package,

(c) property rental income, unless this constitutes part of the applicant's business,

(d) interest on savings,

[vik_mad]

Hi,

Further to this topic, i am bit confused. as per the guideline we can not include the reimbursed expenses into our gross pay. agreed. however the Net salary in the bank is inclusive of reimbursed expenses.

on the pay slip even if i calculate the Gross pay (-) Deductions (i.e. tax & NI) it will not match to the bank transfer.

Could some one explain how we are going to justify that.

Thanks,

[chosenaik]

The proof of earning can include the expenses...its just it wont count towards you getting any higher points.

Non taxable income is not counted in your earnings for T1.

[vik_mad]

The proof of earning can include the expenses...its just it wont count towards you getting any higher points.

Non taxable income is not counted in your earnings for T1.

Thanks,

Apologies i didn't mention that as I was talking about the ILR. Would that the same rule applicable for ILR as well. and somwhere I need to show HO that I have claimed e.g 40 ponts in the sal bracket of £35k-£40k excluding expenses. Would i have to draft that manually on the paper?

Cheers,