IT contractor education expenses

[Prezes]

Hi, I have been working as an IT contractor through umbrella company for a while and I want to start Masters degree next year. I just wanted to confirm the way the expenses and taxes will be calculated with the salary (just to confirm my understanding is ok) to make sure that putting that as "business expense" will be more beneficial than getting individual tax relief.

For simplicity sake lets assume I make 100k a year with effective personal tax rate of 40% and there are no other expenses. The masters costs 5k/year.

As for PAYE relief I would have got 20% of 3500 (first 1500 is excluded apparently for PT courses), so 700 euro back, out of 40k paid in tax. So around 39k paid in tax.

Now, I think the way the tax will be calculated if that goes as business expense is below but im not 100% sure.

gross salary minus master cost: 100k - 5k = 95k taxable salary
personal taxes: 95k*0.4=38k

So am I right in saying that the business expense option will leave me 1300euro more in disposable income? Or am I calculating that incorrectly?

Thanks in advance for any help.

 

[gnf_ireland]

Hi Prezes
I think you will find most Umbrella companies will not allow you put a Master's through as a business expense as it rarely relates to your current contract. I had a similar discussion with a number of them recently

Their advice if you wish to remain a contractor in the medium term is to set up your own limited company and expense the masters through that.

The 'justification' for it is that in the one person company you are taking all of the risk in case of an audit (although assuming the masters relates to what you work at, I don't see the issue personally). In the umbrella scenario, you 'share' the company with 5 others normally, and therefore they would also potentially be liable for any potential issues which arise in the future

Regarding the numbers, anytime expenses can be deducted at source will always 'cost' you less !