Benefit to claiming expenses?

[robz8701]

Surely I have got this wrong but doing some calculations I have realised that if I claim less expenses this does increase my corporation tax but this means I have more money in my business account thus more profit thus more money available for dividends.

Yes if I withdraw more dividends I'm subject to more tax for self assessment but it still works out I have more money net (take home) if I reduce my expense amount?

Surely I have this wrong as I've always been advised that the more valid expenses claim the better it is for me. Or is this purely for corporation tax and not dividends?

Corporation Tax is 20% of company profit right? (gross invoices - expenses)

[psychocandy]

Surely I have got this wrong but doing some calculations I have realised that if I claim less expenses this does increase my corporation tax but this means I have more money in my business account thus more profit thus more money available for dividends.

Yes if I withdraw more dividends I'm subject to more tax for self assessment but it still works out I have more money net (take home) if I reduce my expense amount?

Surely I have this wrong as I've always been advised that the more valid expenses claim the better it is for me. Or is this purely for corporation tax and not dividends?

Corporation Tax is 20% of company profit right? (gross invoices - expenses)

Ummm. Not sure what to say.

OK. You drive 1000 miles per month to client. 45p per mile = £450 you pay out of your company to you.
You earn £2000 a month say. So forgetting thiungs like salary you've profit of £1550 now.

So CT is £310. Dividend is £1240.

Total in your bank account is £1240 plus £450 = £1690.

If you dont claim expenses, pay CT on the lot = £400. Dividend = £1600. See?

[AJ1982]

Legitimate expenses reduce corporation tax and do not count as salary...

Example...

Monthly Contract Value £10,000

Travelling expenses £250 - e.g. a train fare, reimbursed directly to you

Corp Tax is then 20% of £9750

If that makes sense, obv take off the salary and other business expenses too.

[Kenny@MyAccountantFriend]

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.

[robz8701]

Ok, you state "£450 I pay out of my company to you"?

I state this as an expense for my business records but that's it. Are you saying that whatever the expense claim for business mileage is the funds should be transferred to me personally?

[AJ1982]

Ok, you state "£450 I pay out of my company to you"?

I state this as an expense for my business records but that's it. Are you saying that whatever the expense claim for business mileage is the funds should be transferred to me personally?

Yes, you can claim legit expenses direct from your company, think of the same principle of getting expenses in a permie job in that case. (Think they may need to be on the P11D but I leave that for the accountants to worry about)

So yes, the travelling expenses, in this case, are a valid expense out of company income, thereby reducing the Corporation Tax. Dividends are reduced too, but you just got your mileage paid for there

[robz8701]

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?

[TheFaQQer]

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!

Then the sum will have accrued in the directors loan account if it has been entered as an expense and never paid out.

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?

When I get round to entering the details into the accounting portal, it tells me how much money to pay as expenses for the month. Ask your accountant how you should record it, and then pay it whenever you want to.

[JRCT]

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

I think you've misunderstood your accountant, rather than him not explaining it to you. BY the nature of an 'expense' the money has to go somewhere, otherwise it's not an expense.

You buy your lunch and your ltd gives the money to the person that made the lunch.

You drive somewhere on business in your car, your ltd pays you because it's your car.

[Kenny@MyAccountantFriend]

Sounds like there should be a pool of funds repayable to you from the company then for which there would be no personal tax implications.

How was you recording your cash expenses i.e. spreadsheet or online portal such as freeagent, we should then be able to advise on where to get the figure for what is owed to you.