24 Month Rule

[Old Greg]

I have a quick question although I think I know the answer. If you are lucky enough to have a client that has agreed to reimburse your travel expenses, then the 24 month rule is irrelevant as far as YourCo billing the client goes isn't it? You could bill them for as long as they are happy to pay, you just won't necessarily be able to be reimbursed personally by YourCo without paying tax if the 24 month rule kicks in (although you can of course take the extra profit as a dividend if you like).

Yes you are correct. The theoretical question I never quite resolved is whether the 24 month rule applies if the client is paying for your travel to site directly through their corporate travel booking system.

[TheCyclingProgrammer]

Yes you are correct. The theoretical question I never quite resolved is whether the 24 month rule applies if the client is paying for your travel to site directly through their corporate travel booking system.

I can't see how it could apply - for all intents and purposes its a transaction between your client and the supplier for YourCo's benefit. There is no BIK between your client and YourCo or even your client and you personally, as you aren't their employee.

[malvolio]

I can't see how it could apply - for all intents and purposes its a transaction between your client and the supplier for YourCo's benefit. There is no BIK between your client and YourCo or even your client and you personally, as you aren't their employee.

Yep. The 24 month rule is about personal taxation, nothing to do with business income at all.


However...


If challenged, how would you prove to Hector that the money was a legitimate business expense but mysteriously not payment for travel costs incurred by YourCo's workers and (b) that the money so charged wasn't passed on to the worker...?

[TheCyclingProgrammer]

Yep. The 24 month rule is about personal taxation, nothing to do with business income at all.

However...

If challenged, how would you prove to Hector that the money was a legitimate business expense but mysteriously not payment for travel costs incurred by YourCo's workers and (b) that the money so charged wasn't passed on to the worker...?

Assuming you're talking about the scenario I outlined and not Old Greg...then surely if you keep sufficient records of employee expense claims (and what those claims are for) then it should be easy to prove that re-billed travel costs were not passed on to the employee?

[malvolio]

Assuming you're talking about the scenario I outlined and not Old Greg...then surely if you keep sufficient records of employee expense claims (and what those claims are for) then it should be easy to prove that re-billed travel costs were not passed on to the employee?

You miss the point. If the money isn't intended to recompense the worker for costs incurred, then why is it being billed? If it is, why isn't it being paid over to the worker?


Perhaps you need to research the Ramsay principle...

[ASB]

You miss the point. If the money isn't intended to recompense the worker for costs incurred, then why is it being billed? If it is, why isn't it being paid over to the worker?


Perhaps you need to research the Ramsay principle...

Because it was agreed in the commercial arrangements. Its not hard.

[TheCyclingProgrammer]

Because it was agreed in the commercial arrangements. Its not hard.

Quite. What on earth has the Ramsay principle got to do with anything? I think malvolio is missing the point. No tax is being avoided here (in fact more tax is being generated due to the corporation tax on the additional profits).

If you have a contract that says the client will be billed for the travel costs of YourCo's employees and they agree to that, then you bill for it as part of YourCo's service.

Whether or not the employee is reimbursed by YourCo (and in my example they couldn't be due to the 24 month rule without tax implications) is irrelevant and none of the clients business.

Either the 24 month rule applies and YourCo simply retains the net profit from the additional service charge or it doesn't apply and you make an equivalent expense claim from YourCo.

[malvolio]

Quite. What on earth has the Ramsay principle got to do with anything? I think malvolio is missing the point. No tax is being avoided here (in fact more tax is being generated due to the corporation tax on the additional profits).

If you have a contract that says the client will be billed for the travel costs of YourCo's employees and they agree to that, then you bill for it as part of YourCo's service.

Whether or not the employee is reimbursed by YourCo (and in my example they couldn't be due to the 24 month rule without tax implications) is irrelevant and none of the clients business.

Either the 24 month rule applies and YourCo simply retains the net profit from the additional service charge or it doesn't apply and you make an equivalent expense claim from YourCo.

Of course. Now why would the client pay you expenses that you aren't incurring then?


OK, let's put it another way. You can continue to pay out of pocket expenses for as long as you like. The only thing that changes after 24 months is that they are treated as income and are taxed at your highest rate. So why go for complicated answers.

[ASB]

Of course. Now why would the client pay you expenses that you aren't incurring then?


OK, let's put it another way. You can continue to pay out of pocket expenses for as long as you like. The only thing that changes after 24 months is that they are treated as income and are taxed at your highest rate. So why go for complicated answers.

It is not uncommon. Ultimatelty it is simply the cost of the overall services.

Just because an expense is no longer chargeable to tax doesnt mean it wasnt incurred.

[malvolio]

It is not uncommon. Ultimatelty it is simply the cost of the overall services.

Just because an expense is no longer chargeable to tax doesnt mean it wasnt incurred.

Incurred by whom, though? That is the point. If YourCO pays for the travel and accommodation directly and passes this on to the client then fine, obviously. This thread started off talking about "avoiding" the tax on personal expenses reclaimed from YourCO. Different thing entirely.