Corporation tax on reimbursed travel expenses?

[Taipan]

Hi all - my first post - please be gentle

I have recently started contracting and my first client requires that I travel to sites in both in the Uk and also across the EMEA region and, as part of this, the client is reimbursing all travel expenses incurred (hotels, flights/taxis/meals etc).

When I created an invoice, I added this as a seperate item and the client paid the full amount as agreed. However, when checking withmy accountant, they told me:

"You do receive tax relief on the expenses you have submitted, however the amount you have been reimbursed by your client will be treated as income and unfortunately is liable for corporation tax."

So I took this to mean that in any given month, if I were to pay £2000 in travel expenses (using my own personal credit card) and then invoice the client, i'd get the 17.5% VAT back and then pay 21% corporation tax on it (therefore losing 3.5% on the total amount)?

Doesn't seem right to me but perhaps I'm missing something.. could anyone shed some light on this for me please?

--
TP

[Fred Bloggs]

The money your business spends on essential business travel reduces the profit. Corporation tax is paid on profit. Therefore I believe the situation is entirely tax neutral provided you are reimbursed exactly pound for pound?

[northernladuk]

You are claiming these expenses back from the company? You invoice 2k extra one month but are showing a 2K outgoing to yourself in expenses therefore profit = 0 which = no tax charge.

There is an upside of course. Charge them 17.5 VAT and pay 11.5 (or 10.5 with your first year discount) you pocket the difference (which is taxed)

Small point here, I try and avoid the word 'expenses' when dealing with this type of thing, maybe use words like 'expenditure' or 'outgoings' or something daft like that. Expenses are for permies or for contractors that are being directed by clients. May or may not help with IR35 but can't do any harm.

[Taipan]

Thank you very much for your replies - point taken about the use of the word 'expense' - I'll have another word with my accountant and try and clear it up (again) :-)

[Waldorf]

If you invoice for £2000 of expenses but also submit an expense claim to your own company for the same £2000 of expenses, the extra profit is £0 - so there is no extra tax to pay.

I guess there maybe a small profit if you are on the flat rate vat, but this would be small and the gain is yours.

[northernladuk]

Thank you very much for your replies - point taken about the use of the word 'expense' - I'll have another word with my accountant and try and clear it up (again) :-)

Give us a shout with the result. This would have raised a large warning flag if my accountant had come up with it. Keep an eye on him and double check!!!

[Taipan]

Give us a shout with the result. This would have raised a large warning flag if my accountant had come up with it. Keep an eye on him and double check!!!

Hmm, well I just had a chat with the accountants and I was told that this expenditure is considered part of my topline but I will be speaking to one of the senior accountants on Monday or Tuesday to get clarification on this as they are all in a meeting today. Will let you know how that goes.

[Wanderer]

the client is reimbursing all travel expenses incurred (hotels, flights/taxis/meals etc).

Will they pay for some of this directly for you? See if the client will book and pay for the hotel and flights directly for you. Bigger companies usually insist on doing this anyway.