Could someone please explain this payslip for me?

[Chris_H]

My son has just recieved the wage slip below from the umbrella company he's working through. We don't understand why his expenses have been deducted from the taxable pay and then added back? Surely if you deduct an amount and then add it back in, you're back to the original amount without paying the expenses?? The holiday pay is the amount they deducted last week which he has told them he doesn't want them to do, so they have paid it back. It's more the expenses issue we don't understand?

[Chris_H]

timbo999 said:

Its so you don't pay tax on the expenses - standard approach for umbrella companies. They subtract the expenses, then calculate tax, then add them back in...

I still don't get it. If his basic pay is £900 and they deduct £113, it's £787. If you then add it back in, you're back to £900 again (simplistically without tax etc.). Where is he paid his expenses?

[Chris_H]

Mattt said:

See his net pay, that then jumps by the expenses to equal the total remittance

I can see where the expenses are added in, I just can't make sense of it.

The taxable pay is 776.14. This figure has had the expenses deducted from it. The tax and NI (and fee) of 190.48 is then deducted to make a net pay of 585.66. This still has the 113.00 removed from it so we are still 113.00 down from the original £900.
The 113.00 is then added in as expenses paid. This is what my little brain can't compute. If the 113 was originally deducted from the 900 and then added back in again, it's not an additional 113 to the 900, it's a component of the 900 which has been re-added.

[Chris_H]

timbo999 said:

Yes, you're right...

In the umbrella world 'expenses' aren't real expenses (i.e. over and above your pay) they are just a way of reducing your tax bill.

So your son works x hours and earns £900. He then 'claims' £113 in expenses (his travel I presume). The umbrella company aren't paying this - it comes out of his £900 invoiced amount.

This is essentially a way of reducing your tax bill nothing else. The umbrella are not paying your expenses, you are... its just that, as your working via an umbrella, you get the tax back.

Not sure I've explained that too well!?!

OK, that I understand. Well, I understand the mechanics of it. So the expenses amount is solely an amount to reduce your taxable pay by. They are not in fact expenses in the traditional way. More a virtual amount. So, the only 'expenses' you actually recieve are the 20 or 30 quid you've saved in tax?

[Chris_H]

bigandclever said:

Just make sure he understands he needs to work for more than one client through that umbrella at some point so his expenses are actually valid. But the brolly will have told him that, right?

Can you expand on this? It's the first I've heard of it.

[Chris_H]

timbo999 said:

Your son can claim 'travel expenses' to where he is working as its a 'client' of the umbrella company - so he is travelling on behalf of the umbrella company in the eyes of the tax man. To make this valid you can't do it for more than 2 years and you need to do it for more than one client. Otherwise the tax man will say the client is your normal place or work and travel expenses cannot be tax deductible.

Not sure which umbrella he is using, but it should all be explained in their bumpf - if you PM me I can send you the relevant bits and bobs.

OK, thanks. I'll take a look at their website. I'm sure it'll all be on there.
Many thanks for your help.