Paying taxes on expenses

[marc9477]

I've started my first contract about a month ago. For this contract, I'll be spending a considerable amount of time travelling to the various client sites. The client will be covering my expenses. I will be racking up a decent amount of expenses, approx £2000-2500 per month.

My acountant has told me that I should simply add these charges to my monthly invoice to the client. So effectively, I will be paying taxes on these expenses. Hence, I won't be receiving back the full amount that I've paid out for these expenses, but rather I'll be receiving back the expenses charged, minus taxes. So really, I'll end up out of pocket, simply because of expenses.

Is this correct?

thanks

[malvolio]

No.


Oh, you want an explanation? Ah...


Then we need to know how you are working first - own company or umbrella - and how you are managing your accounts.

But "No" is the right answer to the question asked.

[gingerjedi]

If the client is covering the expenses then they should more than cover the actual cost even after tax, if not then I'd be renegotiating what they pay.

Don't go thinking you can claim personal travel expenses through the tax system as well though.

[marc9477]

I'm created my own Ltd. company. I'm using one of the major accountancies that post on this board.

thanks

[xoggoth]

Why would you being paying tax on legitimate business expenses? Where are these taxes being deducted? Total invoices are your income, deduct all legitimate expenses, pay corp. tax on remaining profit.

Even if you were PAYE with client and expenses were being treated as salary for some odd reason you should still get the tax back by putting any legitimate expenses on your tax return.

[Nixon Williams]

You should certainly charge you client for the expenses on the invoice and remember to add VAT (assuming you are VAT registered).

You would then reclaim on an expense form, from your own company, so in effect you would not be taxed on the expenses.

The accounts would show income and expenditure matching so no effect on profits etc. (There may be an effect due to VAT, Flat rate etc).

Alan

[gingerjedi]

You could agree with the client to pay you a 'bonus' instead of expenses and then claim mileage through the tax system i.e. 40 per mile for the first 10,000 miles and 25p thereafter.

[Sockpuppet]

You could agree with the client to pay you a 'bonus' instead of expenses and then claim mileage through the tax system i.e. 40 per mile for the first 10,000 miles and 25p thereafter.

Why? Just add "expenses incurred" to your invoice. You can still claim mileage through the tax system.

Remember your an employee of YOUR ltd. You client pays your Ltd not you.

[malvolio]

And just to clarify things (I hope), company expenses are offset against profit, so you don't pay CT on them, which is only charged on gross profits


Then because Dividends are paid out of profits (honest, that's what they're for) you won't be taking dividends out of money that was used for expenses. Hence, no tax is on expenses.

And taking that one step further, if the expenses paid to you are seen as a Benefit in Kind as opposed to straight business expenses, then you are liable for tax at year end because they will be treated as salary - which is why you need to be clear about what you are claiming for.