Salary VS Allowance

[maynet]

Hi,
I got a UK offer letter of 23 K and my employer says this is not treated as salary but only allowances which are tax free. I just have to submit rental receipt and claim the tax rebate. Previouly they use to offer salary in 30's K and they say that a allowance of 23 K is equal to salary of 30 plus. Is that true? Will a salary of 23 K enough to survive in UK? Are there any other taxes in UK which I would have to bear.
Thanks and appreciate a quick response.

[maynet]

To add to my post, I will be going to Basildon and as a Business Analyst.

[John]

maynet, it sounds highly dubious, and I suspect that HMRC would love to get more details of this arrangement.

[maynet]

What is HRMC? It can't be dubious because I am employed by one of the top IT companies in India. They have changed this Salary from Allowance thing only a couple of months back. So I am a bit worried how it works. I can't believe that just showing a rent receipt will waive my entire tax amount.

[John]

HMRC = Her Majesty's Revenue & Customs.

It can't be dubious because I am employed by one of the top IT companies in India.

OK, that is alright then! The truth is that HMRC have set up a special unit to look into the PAYE tax affairs of certain big software companies.

[Wanderer]

HMRC = Her Majesty's Revenue & Customs.

It can't be dubious because I am employed by one of the top IT companies in India.

OK, that is alright then! The truth is that HMRC have set up a special unit to look into the PAYE tax affairs of certain big software companies.

It happens a lot with Indian companies, half the guys I work with pay no UK tax, can't right....

[John]

Which is why HMRC have set up their specialist unit to look at these matters.

[kenfrapin]

Ok this is a very well known practise and most Indian IT Companies do this. There are very few Indian Service Providers who dont think their employees are slaves and actually give them what is deserved

So then this is how it works, usually that is - The employee tends to get basic salary in most cases back home so there is some money being saved. While onsite in the UK, they only get money for expenses and yes, if all of this is claimed as Expense then there is absolutely no tax as the money is only given on realization on the actual expense.
23k turns out to be £1916 per month and even if the employee does not actually spend that much, the company ensures legal receipts are submitted. If the employee stays in company accomodation and uses other such company provided facilities, its very easy to claim 23k. Also, if this cant be done, the company actually pays the tax for the employee and gives the complete 23k.

Now Maynet - 23k is seriously low wages for a Business Analyst but you dont have any other option if you are coming on a Tier 2 Company Work Permit. Your company is most likely getting paid in the region of £250 to £400 per day as thats the current going rate for BAs - the company makes huge profits and so this is why they dont mind giving you 23k. By the way, if a person earn £30500 annually, the net wage after tax and NI comes to £23k as well. So you can look at it this way - you are getting a pay of £30500 annually including taxes but your employer is avoiding all that and just paying you tax free money.
Also note that this way, the employee can never dream of getting a Tier 1 visa in the UK. This is one of the other big reasons why Indian IT Companies do this - they want to eat the money, they dont want their employee to come to UK and realize they are being swindled because they will surely leave the company after spending 1 year by getting an independant visa. So best is to pay them crap, make them work for years in the UK and still control the fate of the poor chap with a meagre salary of £23k and keep them dependent on the company's visa.

Thats the true picture my friends
KP

[John]

If the employee stays in company accomodation and uses other such company provided facilities, its very easy to claim 23k.

OK, but why wouldn't that provision of accommodation amount to a taxable benefit for the employee? These are tax technical issues but it does not surprise me that HMRC is taking a close technical look at these issues.

[kenfrapin]

Totally agree John - so many of these so called BIG IT Service Providers do this, infact all I know of do this and employees think thats the sacrifice of getting a chance of being in the UK. There only a few small companies that give a decent salary of £30k plus to their employees on proper payrolls but all the well known brands just exploit their employees to the max

I sure hope the HMRC crack down on these IT Companies and ensure the employees are treated fairly. I knew a few guys here who were Senior PMs doing a hell load of work and getting paid just £28k!!! It's from these guys I learnt that the way their contract is made, they can never dream of applying for Tier 1 visas and thats a BIG violation. They were here in the UK for a few years with their families - now that's really unfair to them!
Also, most of these companies even terminate their employees if they get a Tier 1 visa - its a taboo to even talk of an independent visa openly - and that's cruel

Fingers crossed on stopping such blatant misuse of the rules and giving deserving and hard working people their due

KP

[kenfrapin]

If the employee stays in company accomodation and uses other such company provided facilities, its very easy to claim 23k.

OK, but why wouldn't that provision of accommodation amount to a taxable benefit for the employee? These are tax technical issues but it does not surprise me that HMRC is taking a close technical look at these issues.

Sorry to not reply to this - I am not saying it doesnt. This is legal but what I was stating is how the COMPANIES can legally survive by giving Tax free allowances of £23k to employees rather than a normal payslip on UK payrolls

KP

[maynet]

Thanks a lot kenfrapin and John. That was very helpful. I don't yet understand what is Tier1 and Tier2. So, do you mean that just because I will be getting allowances and not salary I cannot go for a Tier1 visa later?

[Wanderer]

Thanks a lot kenfrapin and John. That was very helpful. I don't yet understand what is Tier1 and Tier2. So, do you mean that just because I will be getting allowances and not salary I cannot go for a Tier1 visa later?

Tier 1 is an independant work visa - you are free to work anywhere in UK. Tier 2 is tied to the sponsoring employer, and as Kenfrapin has explained very well, if your Tier 2 sponsor is ripping you off like those outlined above you won't have enough earnings to apply for Tier 1 and so are caught in a trap.

[kenfrapin]

Tier 1 is an independant work visa - you are free to work anywhere in UK. Tier 2 is tied to the sponsoring employer, and as Kenfrapin has explained very well, if your Tier 2 sponsor is ripping you off like those outlined above you won't have enough earnings to apply for Tier 1 and so are caught in a trap.

Perfectly explained Wanderer.
Also note that most Indian IT Companies, and yours especially Maynet, dont advocate applying for Tier 1 visas, even if its possible. Further, if they get a whiff of you planning to do then its pretty certain you will be heading back home in a weeks time!!!
Regarding payslips, I dont have details of how exactly they manage this and what they issue to employees here. You can ask all this from your colleagues here. Just note that if you are coming here for saving some cash for your nest egg then by giving £23k for the role of a BA they are just messing with you and not giving you what you deserve. Of course, nothing's impossible and you can still end up saving more than you would back home provided you live like a miser and are not already drawing a salary in excess of Rs 12lakhs per annum

You can of course check all the above once you are here, there is enough time for that. To end with a positive note, welcome to the UK and hope you get to enjoy the remaining of the fine Summer we are having. I am sure you will like being in the UK
All the best!!!

KP

[maynet]

Thanks again, kenfrapin.

[prisat]

If the employee stays in company accomodation and uses other such company provided facilities, its very easy to claim 23k.

OK, but why wouldn't that provision of accommodation amount to a taxable benefit for the employee? These are tax technical issues but it does not surprise me that HMRC is taking a close technical look at these issues.

In general, companies are allowed to pay an employee on an Per DIEM basis. When you paid on Per DIEM, what you were paid is not taxable. This can not continue for your life time. There are certain restrictions on this which includes -

1. The Type of VISA you are IN...
2. No of days you will be paid like this (you cant be paid on Per DIEM basis through out ur stay in UK. Every country has its own law / restriction. A Maximum # of days would be set and you cant be paid like this after this # of days. Iam not sure about the # of days for UK)
3. Limited access to resources available in the country like insurance....

I may be wrong. But as far as my knowledge goes, this is how things work.

Thank you