Benefit to claiming expenses?

[Kenny@MyAccountantFriend]

Putting the expenses through the company would mean that you have 100% of what you claimed in your pocket plus 20% CT relief on the expenses.

Claiming them on your SATR would only give you the 40 or 45% tax relief. And not the full refund of the expenses as per option 1.

As such you would be worst off overall.

[northernladuk]

Might be useful for OP to get an accountant with freeagent or similar as the software might be a little more intuitive and he can see how his actions change the finances etc.

[ASB]

It depends on whose money it is funding the expenses. What I was thinking:

Spend 1000 on hotel bills from own resources. Get 400 in tax relief via Satr. Net cost 600.

But co has 1000 more profit. Tax 200. Gives 800 left in the company.

Provided that is not immediately paid whilst a higher rate taxpayer then you are 200 better off - eventually. If it were paid then the higher rate tax on the dividend would equalise.

It is quite straight forward. You are best off claiming it where the marginal tax rate is highest. In the situation I described that is personally against the satr given the company marginal rate is 20.

[mudskipper]

It depends on whose money it is funding the expenses. What I was thinking:

Spend 1000 on hotel bills from own resources. Get 400 in tax relief via Satr. Net cost 600.

But co has 1000 more profit. Tax 200. Gives 800 left in the company.

Provided that is not immediately paid whilst a higher rate taxpayer then you are 200 better off - eventually. If it were paid then the higher rate tax on the dividend would equalise.

It is quite straight forward. You are best off claiming it where the marginal tax rate is highest. In the situation I described that is personally against the satr given the company marginal rate is 20.

No, you claim through the company.

Only if you would otherwise leave that money in the company. If you took it as a divvy, you'd still pay higher rate tax on it. For most people, the money they take as expenses is money they won't need to take at a higher rate tax band.

[ASB]

No, you claim through the company.

Only if you would otherwise leave that money in the company. If you took it as a divvy, you'd still pay higher rate tax on it. For most people, the money they take as expenses is money they won't need to take at a higher rate tax band.

a) You do not HAVE to claim it through the company. What are allowable expenses and what the company expense policy is are two different (but often aligned) things.

b) Yes. If it is drawn as dividend from the company then the extra tax on the dividend negates any advantage.

c) As I alluded to in my original comment it depends on sources of income. If you have flexibility and are able to reduce the amount paid at higher rate to less than the expenses then there is a potential advantage in claiming the expenses via SATR rather than claiming it through the company. It depends on sources of income

The situations where it arises are unusual, but possible. e.g. a 50k a year job and a business which does cause a certain amount of expenses to be paid and also not drawing from this business in any form. Highly unusual.

It is highly probable that any saving is tiny and not really worth the effort of chasing.

edit: If I get time later I will do a worked example.

[robz8701]

Appreciate the feedback even if some of it is patronising 😷

I started contracting and using a limited company 3 years ago. I didn't do enough research then and been naive since. Better late than never I guess lol

[psychocandy]

If you are incurring business related expenses you would be better to pay these through the company thus saving Corporation Tax at 20% of the amount spend than paying the expenses personally where you may have had to draw a dividend to fund the purchase and therefore potentially paying personal tax on the dividends drawn if a higher rate tax payer.

Corporation Tax (CT) and dividends are linked to each other as CT is payable at 20% on the company profits and the remaining 80% is what can be drawn as a dividend from the company.

If incurring expenses it would always be better to claim for them via the company than pay for them personally.

Kenny - is this a wind up?

Why does it matter if an expense is paid via company? Its an expense claim so company reimburses the person anyway.

[psychocandy]

WTF!?!? My previous accountant never explained this to me. It was simply a case of stating this as an expense but I never did anything in regards to actual monies!

Other expenses I have come directly out of the business account but the business mileage is an expense claim i.e. no funds come direct from the business bank account for this. I simply pay for my own fuel each month from my personal account.

So how does this work each month in regards to the actual funds\money? Is it a case of doing a bank transfer for the mileage calculated and ensuring my accountant notes this as a monthly expense claim?

Got to be a sockie windup.

Are you serious? If so, I suggest you phone up companies house, close down your company, and get a permie job today.

YES expenses are paid from business to you personally BTW. Whats the point otherwise?

[psychocandy]

The issue is the majority of accountants speak in accountancy terms and assume you to understand. If you understood it all then would there be any need for an accountant?

So to re-iterate and use an example,

For April 15 (new tax year) I will drive 2154 miles for work for which I pay for myself. My business expense claim will be £969.30. In May do I simply setup a bank transfer to my personal account for the expense amount and ensure this is tagged as this expense for accountancy purposes?

Yes mate but ultimately its your company not the accountants so you do need to understand a bit.
Not cool by the accountant mind not checking you understood. Get a new accountant if Iwere you that more meets your needs.

[Kenny@MyAccountantFriend]

My wording is not clear in my original message, so amended below:


Quote Originally Posted by Kenny@MyAccountantFriend View Post
If you are incurring business related expenses you would be better to claim these through the company thus saving Corporation Tax at 20% of the amount spend than paying the expenses personally where you may have had to draw a dividend to fund the purchase and therefore potentially paying personal tax on the dividends drawn if a higher rate tax payer.