Settle Numpty Pub Debate

[Peoplesoft bloke]

My cousin has welcomed me to the world of contracting (he's been doing it for some time) with loads of unsolicited advice. He's a nice enough bloke, but I'm not convinced he's right.

His company has bought a new PDA phone thingy. I said that while it was very nice, I'm trying to keep costs to a minimum as I'm just starting out. He said his accountant had encouraged him to spend cash to save tax.

In my simplistic view, anything my company doesn't spend on expenses is more money that can be paid in dividends, and spending money won't magically create some more money.

Am I missing something? I may be being excessively cautious as a result of my ex-wife who seemed to thing that overdrafts and credit cards were a magical way of getting extra money without having to pay for it. She even saw expenses claims as a sort of bizzare savings plan rather than just getting back what you'd already laid out!

[TheFaQQer]

You're both right.

Anything that the company doesn't spend you can then pay out as dividends and pay yourself.

But things like a mobile phone that you get through the company can be used for personal use, and therefore it's better to put it through the company than buying it yourself.

[ChimpMaster]

Yes you'll get some people that think they can spend the company's money because it isn't themselves actually paying for it. I once had to convince a colleague of mine that just because his company had paid for a laptop this didn't mean that it hadn't cost him anything. Yes it was cheaper than him buying it himself, but it was still a cost to him overall.

You should buy what you need for work, through the company. That way it becomes tax deductable. If you don't need a PDA, why buy one in any case? Why spend cash if you don't need these things?

For example - you will more likely need a laptop, so buy this through your company and claim back the money. The point here is that you have bought the laptop with "pre-tax" money. If you took company funds out as a dividend, and then bought a laptop, you would have incurred dividend tax (say, 20% for argument's sake), so the laptop is costing you this much more. Not only that, but you would have to pay VAT on it, whereas YourCo can claim this back (but you should also look into VAT FRS).

Put all valid/required expenses through YourCo... that is the aim. Not just to spend cash for no reason!

[Ardesco]

What his accountant probably meant is this:

"If you are going to buy something anyway and you can think of a legitimate business use for it put it through your company. If you do this you are in effect getting it tax free and you can claim VAT back on it*"

(*Assuming you are VAT registered and not on flat rate/item is above the flat rate threashold for claiming VAT back on an individual item)

What your friend took it to mean is

"WOOOO!!!! FREE MONEY !!!!!!! SPEND SPEND SPEND!!!!"

[Peoplesoft bloke]

Thanks folks - appreciate the replies. I don't need a PDA and I already have a laptop that the Company may buy off me if they get a good deal

[TheFaQQer]

Thanks folks - appreciate the replies. I don't need a PDA and I already have a laptop that the Company may buy off me if they get a good deal

If it's a reasonably new one, then you can put pre-company expenses through the business within reason so might be able to claim the whole thing.

Ask your accountant.