Expenses

[beardedfool]

Afternoon all,

Posted on here before and really appreciated all the help. I was looking at my first contract but sadly the project was put on hold. Should have an offer of another one tomorrow though.

Just to say I'm looking at incorporating next week and getting accountants (sjd possibly), PCG membership, liability and IR35 insurance and contracts checked for IR35 then. In preparation I'm just trying to get my head clear on a couple of issues. I've had a look through the forums and quite a few sites but am having a little trouble with 2 questions.

1) Expenses - I think I've got myself confused here. Essentially the contract will include a lot of working away from home (my registered office) and I'll be looking at both invoicing the agency/ client and/ or claiming for expenses for: travel (planes and trains), overnight stays and some subsistence - though I won't take liberties with the last one. I think I've got my head round the VAT implications of that - disbursement vs recharge
What I'm having trouble with is how to deal with expenses - I keep thinking I'm there but think I then confuse myself.

So the question:

When I get to a point where the ltd company has a warchest- Are there any problems with putting these expenses onto the company card directly if that helps my personal cash flow. I'll be making a directors loan into the ltd company to start with to deal with setup costs etc anyway and would prefer to keep costs in the company where possible?

Entertainment- continuing from that. There will be sometimes where I will look at meals etc to network. As a permie I could claim a certain amount of this back. Whilst I recognise that, if the ltd company pays, it won't go against corporation tax, surely it's still better than paying out of taxed income and trying to reclaim it.

Essentially I'm looking for when to pay out of my 'employees' taxes income and when to pay from the company. I certainly don't see the company as an extension of my personal accounts and want to keep them very separate but, in the same way, don't want to have to pay out of taxed income where I can avoid it. I can see it's worth claiming some meals etc when I'm away but paying for a flight to reclaim it later just seems to screw my personal cash flow.

Clear as mud?

2) IR35 with new company. Whilst I wouldn't do this a contractor at my old work seemed to suggest that he closed his company and started a new one every 2 years or so (or as close to as the contract would allow and I imagine that time-scale relates to the 24 months for temporary work. Part of the reason was to stop HMRC going after him for IR35.
As I say, it's not something I'd do - it just seems to be asking for a red flag from HMRC but I wondered, does it limit their ability to chase a director on IR35 once you've ceased trading, or is it a personal issue of you paying the correct taxes as an employee of your Ltd?

Sorry for the length of this and if it's not clear and thanks in advance for any help.

[malvolio]

1. I've put all my working expenses (i.e. the ones that are totally work-related) on the company card for years. Keeps it simple and accountable and, as you say, stops you spending and reclaiming money for no purpose (apart from complicating your P11D at year end!).

Entertainment is tricky so be careful. There are rules about allowable claims and VAT applicability. If it's totally sales related then you may be OK, but check with the accountants, specualtive visits to networking events probably aren't allowable. Never ever forget that YourCo and You are two different persons (literally) so keep in mind at all times who the money is being spent on.

2. He's talking bollocks. The golden rule is "Join the PCG. Do what they tell you. Ignore IR35". Investigations are triggred by wrong or exceptional things happeneing that HMRC notice. Pointlessly phoenixing YourCo is one of them, so your smarrt colleague is increasing his risk, not reducing it. And IR35 is per contract, not per company; the actual intermediary is irrelevant since it starts from a personal tax investigation

[Craig@Clarity]

Good afternoon,

When I get to a point where the ltd company has a warchest- Are there any problems with putting these expenses onto the company card directly if that helps my personal cash flow. I'll be making a directors loan into the ltd company to start with to deal with setup costs etc anyway and would prefer to keep costs in the company where possible?

There is no issue with paying for expenses from the company card rather than personal cash and then reimbursing yourself when you have a warchest. In fact, it will make your life easier as you don't then have to record the expenses and make transfers from the company to your personal account from an accounting and admin point of view. Also, if you paid for expenses directly from the company account (assuming you don't have a dispensation in place), reduces the amount required to be reported on the form P11D.

Entertainment- continuing from that. There will be sometimes where I will look at meals etc to network. As a permie I could claim a certain amount of this back. Whilst I recognise that, if the ltd company pays, it won't go against corporation tax, surely it's still better than paying out of taxed income and trying to reclaim it.

This makes senses but you just need to be aware that if "client entertaining" becomes excessive, it could create benefit in kind issues

2) IR35 with new company. Whilst I wouldn't do this a contractor at my old work seemed to suggest that he closed his company and started a new one every 2 years or so (or as close to as the contract would allow and I imagine that time-scale relates to the 24 months for temporary work. Part of the reason was to stop HMRC going after him for IR35.
As I say, it's not something I'd do - it just seems to be asking for a red flag from HMRC but I wondered, does it limit their ability to chase a director on IR35 once you've ceased trading, or is it a personal issue of you paying the correct taxes as an employee of your Ltd?

HMRC could still inquire into IR35 into a company that has been closed down but then the likelihood obviously diminishes. Never say never. I would agree it's a non cautious approach to keep closing down ever 2 years.

On top of that, it may not be the best solutions from a tax planning point of view if he keeps closing and opening up companies straight after one another. If he is contracting on a continuous basis, all income would be treated as dividends rather than capital which entrepreneurs relief can be applied to under the right conditions.

[beardedfool]

Thanks for the speedy response and that clears it up for me completely. Really is appreciated.

Certainly agree about the entertainment. I was trying to ratify in my head how it works for me when I consider my girlfriends position. She's a permie but often takes clients our for dinner and just expenses it to the company. I would assume, from a tax point of view, it's the companies' choice to allow that to happen - they're free to spend their money on what they want so long as they don't try to take it off their corporation tax.

Have read through so many threads on this site - so many people get flamed (quite rightly as they clearly haven't made any effort to research) and then start a battle with people replying. Hopefully this post shows you can ask stupid questions and get sensible answers. Which is reassuring as I'm sure there will be some others coming.

Thanks again.

[beardedfool]

Thanks Craig,

Hadn't considered the entrepreneurs part and it's a fair point.

It also necessitates drawing all the money out of the company at that time so you can't pay yourself whilst on the bench. Frankly it just seems to open yourself up for ill feeling and I could do without that - it seems tricky enough to negotiate IR35 anyway.

[Craig@Clarity]

If a contractor felt he/she was truly outside of IR35 and in business in his/her own right, there wouldn't be any need to keep creating "phoenix" companies unless they were ultra ultra paranoid!

[tarbera]

Expenses

Does your new contract inculde Expenses to be paid by the Client.?

[beardedfool]

Yep, all these expenses will be paid by the client, so I still need to get my head around the VAT implications of some of that but that will come.

Only one I can see worth expensing from my personal is the meals - or is it better to put them through the company directly as well?
Actually I think I've just confused myself again - I can't think of anything I'd want to pay personally and claim on expenses, rather than have the company pay directly. I won't be charging for rent on my property (I think I can leave the £3/month) or mileage as I don't drive.
Or is that using the company's bank account too often in some way?

PS to Craig I'm happy to personally be a little paranoid at the moment as this is new to me, but not to that extent

[mudskipper]

Yep, all these expenses will be paid by the client, so I still need to get my head around the VAT implications of some of that but that will come.

Only one I can see worth expensing from my personal is the meals - or is it better to put them through the company directly as well?
Actually I think I've just confused myself again - I can't think of anything I'd want to pay personally and claim on expenses, rather than have the company pay directly. I won't be charging for rent on my property (I think I can leave the £3/month) or mileage as I don't drive.
Or is that using the company's bank account too often in some way?

PS to Craig I'm happy to personally be a little paranoid at the moment as this is new to me, but not to that extent

'Cash' expenses for me are: meals - ClientCo canteen unlikely to take company card, and mileage reclaim - 45p a mile up to 10K miles. Anything else you need to pay cash for - odd bits of stationery etc.

[beardedfool]

Fair point about the cash part, thanks for that.