Expenses, Corp Tax and Dividends

[jamesbrown]

Unless a valid expense has been incurred by you on behalf of YourCo, there is no expense with which to offset CT. The process of YourCo incurring an expense is entirely separate from whether (and to what extent) that expense has been reimbursed by a client. In your example, no expense has been incurred. Had you incurred an expense, the client might have paid an arbitrary amount (including zero) to reimburse that expense, because you are selling them a service. This income will be subject to CT as normal and whether (and to what extent) you can offset the CT on that income with a claim for a valid expense is a separate issue (between you, YourCo and HMRC).

[TheFaQQer]

If the client is paying you a daily allowance, then I'd consider very carefully whether you should be paying any dividends at all.

[kookachoo]

In that case, the flights and accommodation shouldn't be claimed as you haven't actually incurred an expense. The other expenses where you have paid out can be claimed for. If you are billing the client for the expenses then there will be no effect on profit, as turnover will increase by the same amount as the expense.

Hope this helps!
Craig

I actually get this Craig and have been doing this for years. However when paying for expenses personally and then claiming them thru MyCo and then billing to the client has always made me wonder if this is the right way of doing it.

Example.
I pay £100 VAT inc for a hotel out of personal funds.
I claim £100 from MyCo
MyCo bills client for £100 VAT inc
Client pays £100 VAT inc
I'm on FRS which @ 14% of £100 = £14.00 being paid to HMRC

So for every £100 of expenses my company effectively ends up £14 down. Is that right?

[jamesbrown]

I actually get this Craig and have been doing this for years. However when paying for expenses personally and then claiming them thru MyCo and then billing to the client has always made me wonder if this is the right way of doing it.

Example.
I pay £100 VAT inc for a hotel out of personal funds.
I claim £100 from MyCo
MyCo bills client for £100 VAT inc
Client pays £100 VAT inc
I'm on FRS which @ 14% of £100 = £14.00 being paid to HMRC

So for every £100 of expenses my company effectively ends up £14 down. Is that right?

You can bill your client whatever you want, plus VAT (whether they will pay it is another matter). Once you start expensing a lot of things, the FRS makes less sense. Otherwise, have the client book the hotel.

[TheFaQQer]

I actually get this Craig and have been doing this for years. However when paying for expenses personally and then claiming them thru MyCo and then billing to the client has always made me wonder if this is the right way of doing it.

Example.
I pay £100 VAT inc for a hotel out of personal funds.
I claim £100 from MyCo
MyCo bills client for £100 VAT inc
Client pays £100 VAT inc
I'm on FRS which @ 14% of £100 = £14.00 being paid to HMRC

So for every £100 of expenses my company effectively ends up £14 down. Is that right?

If that's what the contract says, then that's how you bill it.

The way I do it is:
Hotel £100 including VAT, paid for by my company
Invoice £100+VAT to clientco
£17.40 goes to VAT man

[TheCyclingProgrammer]

I actually get this Craig and have been doing this for years. However when paying for expenses personally and then claiming them thru MyCo and then billing to the client has always made me wonder if this is the right way of doing it.

Example.
I pay £100 VAT inc for a hotel out of personal funds.
I claim £100 from MyCo
MyCo bills client for £100 VAT inc
Client pays £100 VAT inc
I'm on FRS which @ 14% of £100 = £14.00 being paid to HMRC

So for every £100 of expenses my company effectively ends up £14 down. Is that right?

In that example, yes you would be potentially losing out on that £14. However there's no reason why you couldn't re-bill the expense to the client at gross cost, then add your VAT on top of that. You can re-charge your client whatever net cost you want for your expenses as long as you both agree - it could be net of the original VAT, it could be gross, it could be a flat rate, it could be a fixed amount etc. The only rule is whatever you choose to charge, you have to add your own VAT on top.

Remember you may incur expenses that were exempt or zero rated for VAT but you would still charge VAT when passing these costs on to your client anyway.

The client gets to reclaim the input VAT you charge but they may still insist on you re-charging at net cost as it costs them less overall. Its not the client's problem that you can't reclaim the input VAT on your original expense and have to deduct your flat-rate VAT from whatever you charge them.

But bear this in mind...it might seem like you're losing out on £14 in the above example but this isn't really any different to you not being able to reclaim input VAT on your purchases. The difference in the VAT you charge and your flat rate amounts to a "surplus" that is intended to cover your VAT costs without having to account for them on a per-item basis. It should also cover scenarios like this one - you probably aren't losing out overall. If you are re-charging a lot of expenses at net cost, or have a lot of VAT-able expenses, then this will eventually eat away at your FRS surplus to the point that you stop profiting from the FRS and start making a net loss. If this is the case you would be best advised to come off the FRS.

[kookachoo]

Thanks TCP - Nicely put, much appreciated!

[Contreras]

So for every £100 of expenses my company effectively ends up £14 down. Is that right?

Correct. Although this ignores the more significant billing of 8 hours (or whatever) that is only achieved through you incurring those expenses. Think of it rather as 'less profit' than an actual 'loss'. Understanding this at the outset you can quote a rate accordingly, so it shouldn't matter.

Also as others have said there is no requirement for the incurred/charges expenses to align, except by whatever is agreed in commercial contract. It's possible even to profit on each expense, which would be the case if the client agreed to pay cost+VAT and YourCo was on FRS.

[LisaContractorUmbrella]

If the client is paying you a daily allowance, then I'd consider very carefully whether you should be paying any dividends at all.

This. What is the allowance for?

[Scruff]

Have you got this?

Tax Liability Cover - TLC35 - Full IR35 Insurance - Qdos Consulting

Sounds to me that your IR35 status is seriously questionable (MOO) and you should be drawing a salary. The alternatives are truly frightening!