away from home.. claiming

[TheFaQQer]

yes, I've looked through it but its not sinking in I dont think..

so, in leymans terms, I'd be better looking for a contract nearer to home (no traveling expenses etc) paying the same daily rate to maximize my profit.. am I correct in thinking this way?

No.

You want to spend as much money as possible, that way it reduces your corporation tax bill, and because there is less money to pay yourself, it means that you pay less tax overall.

If you couple this with a really low paying contract, you may find that you can reduce your tax bill to zero.

Good luck

[cjonline]

I think what the op was hoping to see (and this does seem fairly common) was:-

Billing 5,000
Profit 5,000
Tax 1,000
Less hotel bill 1,000
Actual tax to pay zero - whoopie.

Net left 4,000

There does seem to be a common though that something being tax deductible means it is deducted from the tax payment rather than deducted from the amount charged to tax. Sadly it is the latter of course.

Yes thats what i was hoping

[cjonline]

No.

You want to spend as much money as possible, that way it reduces your corporation tax bill, and because there is less money to pay yourself, it means that you pay less tax overall.

If you couple this with a really low paying contract, you may find that you can reduce your tax bill to zero.

Good luck

But surely you would want as much money in your pocket from revenue in the end?

[cjonline]

As Louisa said it reduces your profit. And thus it reduces your corp tax a bit; it seems you enquiry was whether it reduces the corp tax by the amount of the expense. Sadly not, or everybody would just take a suite in the Ritz. It does mean that the impact is not quite as bad as it otherwise would have been.

Example claimable exps.

Billing 5,000
Hotel 1,000
Gross profit 4,000
Tax 800

Net profit after tax 3,200 (what's left)

If the exps were not claimable then the tax would be on 5,000 giving a tax payment of 1,000 and net income after of 3,000

This example is exactly what im looking for

[SueEllen]

this example is exactly what im looking for

Get yourself an accountant!

[cjonline]

Get yourself an accountant!

I have one.. but i didnt understand the tax/revenue/profit stuff

[wantacontract]

don't mean to be harsh...

but you don't understand that stuff...

ffs go and understand it then...it's not rocket science.

[mudskipper]

As this is travel cost, you will need to be aware of the new SDC legislation when this comes in from April 2016.

If he's operating via a brolly, otherwise it is IR35

[LondonManc]

I have one.. but i didnt understand the tax/revenue/profit stuff

It's very simple at our level.

Revenue - Cost = Gross Profit

Gross Profit - Corp Tax = Net Profit

Let's say revenue is fixed at 110,000 and salary at 10,000

Case Study A:
Costs - if you're staying away, you could slum it in a dodgy B&B and use Megabus and incur 5,000 costs
Therefore your Gross Profit is 95,000 (110 - 10 - 5),
Therefore your Net Profit is 95,000 less 20% of it, 76,000

Corp Tax is 20% of that.

Case Study B:
Costs - you're staying away but fancy the Monday morning train to London and Friday back, both peak plus four nights in a decent hotel. That's 600pw, rolling up to, say, 25k for the year.

Therefore your Gross Profit is 75,000 (110 - 10 - 25)
Therefore your Net Profit is 75,000 less 20% of it, so 60,000

Your obsession with Corp Tax is misplaced. It sounds like you've got Corp Tax as the silver bullet to be reduced based on misunderstanding of it.

Option C, you take a lower paid contract near home:
Revenue 60,000 Salary 10,000, Costs 2,000 (bus fare there and back)

So, 48,000 gross profit, 9,600 corp tax, net profit 38,400. And that's the bottom line!!!

Obviously I'm simplifying it because bringing things like VAT and dividends into it will confuse you further, but stop worrying about accountancy unless you want to become an accountant.

[handyandy]

The simple answer is that expenses incurred wholly and necessarily in the course of business are a business expense and you pay them out of your gross revenue (i.e. earnings) before anything else happens (e.g. corp tax, dives, salary, PAYE) - the only exception is VAT (which more or less stays in it's own ring fence as you are simply a tax collector for HMRC).

The real question you need to ask is 'is it worth it'.

Maybe I could give a practical example form my own experience (about 7 years ago as I've since gone perm)...

I've always worked in London and lived close enough to commute each day (just) - mix of perm and contracts over a long period. All of a sudden the other half dream job came up and we decided to move to another part of the country and that put me out of reasonable commute distance (2+ hours each way).

After looking for a 'local' job and finding they paid about 25-30% of the London roles I could get we decided to 'live together, apart' during the week (i.e. I commute to the smoke and work and live there monday to friday then come back for the weekend). Sometimes it's possible to get a friday working from home but not always. This worked well for me and I've loved it - but it's not for everyone.

What made this worth while was the day rate on the contract was very good (over £700 per day) and I rented a one bedroom flat. With energy, council tax, rent and travel costs back and forth each week I was claiming expenses from my ltd. of around £2k/month!

But if you are grossing ~£150k per year then taking £25k off of that is not bad. You'd need to be getting a contract day rate of nearly £570 living close to your home. SO practically speaking that's the way you should look at it from a pure financial viewpoint - 'gross invoices (exc. VAT) away from home' - 'gross expenses of living away' need to be >= 'gross invoices of job near home'.

Of course, that analysis does not take into account whether you want to live that type of lifestyle - I loved it other people would end up having a breakdown (and to be honest at a different stage in my life and relationships I probably would have done!).

The thing you should not do is take a job that will require you to pay high levels of expenses simply for a tax break. You may also find that the high level of expenses draws HMRC attention (though with me it did;t and I'd guess that's because the net was still quite high so they still got a good level of corp tax, etc. from me).

Hope that helps put your thought process into a more realistic setting.