Expenses to turnover percentage

[missinggreenfields]

I've just done a small review of the accounts and my expenses are approx 50% of the turnover, which I think is quite high. Most of the high expenses come from either accommodation (hotels, roomshare) and millage. In fact, a lot of millage. So for the remainder of the year I'm going to do my best to keep them down, cheaper hotels etc.
Being a contractor, and as it's my first year trading, I'm a nervous newbie, and really don't want to trigger any red flags with HMRC even though all my accounts are accurate, legitimate and I have receipts accountable for everything. I was just wondering if this percentage is pretty normal amongst contractors.

As others have said, as long as they are legitimate then there's nothing to worry about.

In terms of whether your level is similar to others, it's impossible to compare really unless you are in a very similar situation to someone else. Travel can really rack up, even if you aren't staying anywhere too flash - I used to rent a room in London somewhere reasonably nice but nothing fancy and that was over £600 a month, so that racks up £7k a year. Trains from where I live to London are over £200 a week return plus mileage to the station, so there's another £8k easily. Add on food as well and it starts to get high.

50% seems a little high to me - in my first full year I spent about 35% of turnover on travel and subsistence, plus there were then other expenses and salary etc. on top of that. 50% seems high - but that could be down to rate and genuine costs rather than there being much that you can do anything about.

[Lance]

Rubbish. It very much depends on where you live and how you get to London.

Perhaps. It's been years since I worked in London and I always stayed on the outskirts in crappy digs.

Would you put a figure on it for the OP?


EDIT>>>>>>>>
Your figures you posted earlier show £17k before subsistence. So £20k is not that far off.

[MrMarkyMark]

Looking at all of this, it looks like the OPs rate is the issue?

[TheCyclingProgrammer]

W.R.T. the FRS, if you're on the fairly standard percentage of 14.5% (1% discount in first year) you'll be making £2.60 in VAT surplus for every £100 you invoice. That's the equivalent to VATable expenses of £15.60 gross per £100.

So if you're on a day rate of £500 you'd have to incur more than £78 in VAT inclusive costs before being on the FRS would no longer make sense. As things like mileage and train tickets do not have any VAT it's really just your subsistence and accommodation as far as day to day expenses go (i.e. The direct costs of working on-site).

So it should be obvious that the FRS would be beneficial for most contractors. Fixed annual costs shouldn't be too high (accountancy and professional fees, insurance etc) either. If you buy lots of hardware that might be something to keep an eye on.

[chopper]

I wouldn't panic about your expenses if they're legit.

Hotels at £200pw max = £10,000 pa max

I suspect he meant £200 per night, four nights a week.

[SueEllen]

I suspect he meant £200 per night, four nights a week.

No he did mean £200 per week.

[LondonManc]

Perhaps. It's been years since I worked in London and I always stayed on the outskirts in crappy digs.

Would you put a figure on it for the OP?


EDIT>>>>>>>>
Your figures you posted earlier show £17k before subsistence. So £20k is not that far off.

Depends how you stay. £50 a night doesn't get you much for hotels if you're not paying in full in advance. One of the stay sights like spareroom.com can set you back less but you're signing up for a term and putting expenses at risk with notice period. Premier Inns will set you back £400 per week, Travelodge £60-85 per night.

Transport wise, Manchester to London is about 220 miles (give or take 30 miles depending on specifics). So, 20,000 miles a year (approx.) or trains - £150 return per week if you go Monday morning and come back off peak Friday pm (before 3:01 or after 6:56). Big money to be made on driving given that you're looking at £50 fuel for a round trip but it does take it out of you. Probably worth it to get over your initial 10k top rate mileage but mix it up with train journeys to relax a bit.

While my estimate was ball mark for my figures, it's easier to go higher but difficult to go lower without your quality of life suffering.

I suspect he meant £200 per night, four nights a week.

I doubt it. That's permie management expense levels (or MF).

[johndc31]

Thanks for the input folks.

My new contract is 50 mile from home, so I'm hoping that by Christmas that percentage would have significantly dropped.

My London contract wasn't the best rate but by no means the worse, but it was my first gig, I just wanted to get things rolling.

To quote what my accountant said about FRS

"We would still expect the savings from this to outweigh the benefits of reclaiming the VAT on the standard rate, particularly as the vast majority of travel costs and a fair proportion of your accommodation costs would not have VAT applied (roomshare, small hotels). Furthermore whilst you can reclaim VAT on mileage, you can only claim this on the proportion of the mileage that relates to fuel (mileage is also designed to cover the other running costs and wear and tear costs of using your own vehicle for business purposes.)"

So at least I think FRS is still the way forward even though expenses are high.

[LondonManc]

Thanks for the input folks.

My new contract is 50 mile from home, so I'm hoping that by Christmas that percentage would have significantly dropped.

My London contract wasn't the best rate but by no means the worse, but it was my first gig, I just wanted to get things rolling.

To quote what my accountant said about FRS

"We would still expect the savings from this to outweigh the benefits of reclaiming the VAT on the standard rate, particularly as the vast majority of travel costs and a fair proportion of your accommodation costs would not have VAT applied (roomshare, small hotels). Furthermore whilst you can reclaim VAT on mileage, you can only claim this on the proportion of the mileage that relates to fuel (mileage is also designed to cover the other running costs and wear and tear costs of using your own vehicle for business purposes.)"

So at least I think FRS is still the way forward even though expenses are high.

That's correct. When I first set up my limited co, I discussed it with the accountant, who advised that unless you're regularly buying and selling, FRS is the right way to go in 99% of cases.

[SlipTheJab]

Wow 50% expenses! Even when I was paying 1500+ notes a month for 1st class travel from Brum to Euston my expenses were less than 20% of turnover, saying that I have seen some tulip rates on offer in London so can see how that would add up.