Everybody who works incurs a certain amount in work related expenses, whether it is the pub lunch you buy each day, or the train fair to get to and from work during the week. There is however a considerable benefit for contractors over permanent employees in regards to the expenses they incur.

It’s no secret that a contractor’s allowable expenses are not subject to tax and NI contributions providing that their workplace is deemed a temporary one, whereas a permanent employee’s pay the full cost of their expenses out of their own pocket, thus their net earnings can be subsequently lower.

For example:

A contractor working through the Danbro Umbrella Company earns £500.00 a week. The contractor incurs £100.00 in expenses and once Danbro offsets the tax on the expenses, the total amount only really comes to £62.00, which is a saving of £38.00. A permanent employee in the same circumstances would not be able to offset any tax and therefore would have a lower net income.

Many contractors use our Umbrella Company calculator, which gives them a projection of what they can expect to come out with at the end of the week once their allowable expenses have been accounted for and can give a contractor an idea just how much they could save using an umbrella company.

If we put the financial advantages to one side, there are still many other benefits that are associated with contracting such as; being your own boss, greater flexibility about where and when you work and building up a wide array of experience by working on different assignments.