Expenses reimbursed directly to individual

[ContractorsSpouse]

Client has offered to cover expenses for a one-off overseas trip. Client is paying some items directly, but wants to book accommodation (preferential rates) and accommodation needs to be paid for at checkout by the individual. Client wants to reimburse the individual staying/paying directly. They do not want OurCo to invoice Client.

So, if the individual pays for the accommodation, and that ClientCo reimburses the individual directly, a) what else if anything does the individual need to do? (e.g. any self-assessment implications?) and b) what if anything does ClientCo need to do.

Contract falls within IR35, so I'm not concerned with IR35-related issues for this. Just obligations with HMRC from the individual's and OurCo's perspective.

[northernladuk]

What did your accountant suggest?

[TheFaQQer]

Client has offered to cover expenses for a one-off overseas trip. Client is paying some items directly, but wants to book accommodation (preferential rates) and accommodation needs to be paid for at checkout by the individual. Client wants to reimburse the individual staying/paying directly. They do not want OurCo to invoice Client.

So, if the individual pays for the accommodation, and that ClientCo reimburses the individual directly, a) what else if anything does the individual need to do? (e.g. any self-assessment implications?) and b) what if anything does ClientCo need to do.

Contract falls within IR35, so I'm not concerned with IR35-related issues for this. Just obligations with HMRC from the individual's and OurCo's perspective.

The client is suggesting that they pay the person directly, in the same way that they would pay their permanent employees, and you don't think that there is an IR35 issue to consider??

What is the contractual relationship between the individual and the client? The client should pay the party that they have the contractual relationship with - if that's the individual then great, otherwise it should be the company.

Not being an accountant, I'd check what the implications are of an individual getting paid expenses from a company that they have no relationship with - you can claim the expenses back from your employer, but I don't know whether you can just claim them back from someone else.

I'd say no - the individual claims from their employer, the employer then adds expenses (and VAT) and invoices the client for those, as per the contract.

[ContractorsSpouse]

The client is suggesting that they pay the person directly, in the same way that they would pay their permanent employees, and you don't think that there is an IR35 issue to consider??

What is the contractual relationship between the individual and the client? The client should pay the party that they have the contractual relationship with - if that's the individual then great, otherwise it should be the company.

Not being an accountant, I'd check what the implications are of an individual getting paid expenses from a company that they have no relationship with - you can claim the expenses back from your employer, but I don't know whether you can just claim them back from someone else.

I'd say no - the individual claims from their employer, the employer then adds expenses (and VAT) and invoices the client for those, as per the contract.

Well, given that the contract is within IR35, surely any potential IR35 issue this might otherwise cause isn't a consideration here?

[Ticktock]

The client is suggesting that they pay the person directly, in the same way that they would pay their permanent employees, and you don't think that there is an IR35 issue to consider??

OP already knows that they are within IR35, so are not worried about whether how they are paid will affect the IR35 position.

I agree, speak to your accountant. Whenever I travel for a client they normally book a hotel for me, which I then pay for and claim for. One major advantage of this is that I charge VAT on top of the total cost, so gain a small extra little cut. I've done this when direct with clients, and when via agencies (my current contract, via an agency, states that expenses will be charged with VAT added on top).
It seems very strange that the client will just give you the money without being invoiced for it - I'm not sure how this would be covered in their accounts, a payment without invoice to a non-employee.

[BlueSharp]

I thought subsidiary and travel expenses were allowed even under IR35. Now I'm not an accountant but if you get reimbursed directly you would've already used up some of your tax/NI allowance on the cash you paid for the expenses with. If you raised an invoice to cover the expenses you could write some of the IR35 income off against the expenses and save some of the tax/NI allowance.

Best ask an accountant!

[ContractorsSpouse]

What did your accountant suggest?

First response was, unsurprisingly, to avoid doing it (i.e. to invoice). I await their response to my 'they won't do it any other way' reply...

[TheFaQQer]

Well, given that the contract is within IR35, surely any potential IR35 issue this might otherwise cause isn't a consideration here?

Sorry, misread the original post

[TheFaQQer]

I'd ask the accountant whether if you were forced to go the route that the client suggests, would you need to declare the expenses being reimbursed as unearned income?

[Martin at NixonWilliams]

Client has offered to cover expenses for a one-off overseas trip. Client is paying some items directly, but wants to book accommodation (preferential rates) and accommodation needs to be paid for at checkout by the individual. Client wants to reimburse the individual staying/paying directly. They do not want OurCo to invoice Client.

Have they explained their reasons for wanting to avoid the expenses being paid through the company? It sounds like they are trying to avoid the VAT, however if they are VAT registered it is unlikely to cost them any extra.

It is possible for you to act as the agent instead of your company, but this could also come at a cost to you if you are on the flat rate scheme as you will lose out on the additional income. There is also the impact this has on your personal cash flow of course, what if you are not paid? I'd rather the company suffer the bad debt and get tax relief etc than be out of pocket personally.

My advice would be to avoid this arrangement unless there is a plausible reason for doing it.

I hope this helps.

Martin