Reply to: NW take home pay calculator

[jamesbrown]

Yes, lots, but this is tax law we're talking about; confusion and lack of clarity are a given. However, IMVHO the guidance quoted by HMRC is pretty clear - if you go there every day, or even almost every day, you can't claim for lunch. I disagree with Crunch's interpretation for that reason.

And FWIW I don't claim for lunch myself; 20% of £3.50 roughly 80 days a year, I really CBA for a mind-blowing £56. Life's too short.

Right, I certainly don't dispute the logic of not bothering with it - I wouldn't bother myself, but I also think it's clear from the guidance that the "normal pattern" is a clarifying sub-clause of "the trader does not travel to the place more than occasionally", i.e. it helps to define what is meant by "more than occasionally". Put differently, one could be involved in a trade that is not itinerant and still claim for meals if "the trader does not travel to the place more than occasionally" and, specifically, "the trader does not have a normal pattern of travel" or, if they do, "the travel concerned is not part of the trader’s normal pattern of travel". I think you have to interpret the "normal pattern of travel" in the limited context in which it's given, as a clarifying sub-clause. Providing it's an itinerant trade and the travel expenses can be claimed (e.g. they are not disallowed by the 24-month rule), the meals can also be claimed. Relevant discussion of itinerant trades here:

BIM37620 - Wholly and exclusively: duality of, or non-trade, purpose: travel costs: to and between sites

Anyway, that's my reading, although I don't suppose it's worth arguing about, given the ambiguity.

[PerfectStorm]

My accountants (Nixon Williams) pointed to the definition of the "normal pattern" being stuff that happened for more than 24 months. It becomes normal, and thus unclaimable, at 24 months. My place of work, they said, is my house and the temporary site is the client office I sit in every day. Similarly, London travelcard is claimed.

[malvolio]

Hmmm, I work from home also, so I haven't looked into this carefully, but my interpretation is different, since it says:

"A deduction must be allowable for the cost of travelling to the place" AND
"the trade is an itinerant trade" OR "the trader does not travel to the place more than occasionally" (and the clause on normal patterns is a sub-clause of the latter)

In other words, assuming you can claim expenses for the cost of travel AND the trade is itinerant, meals should be allowable as part of that travel expense claim.

If you are correct (and you may be), there appears to be conflicting advice:

Contractor Doctor: Can I claim for regular lunch and food expenses?

Yes, lots, but this is tax law we're talking about; confusion and lack of clarity are a given. However, IMVHO the guidance quoted by HMRC is pretty clear - if you go there every day, or even almost every day, you can't claim for lunch. I disagree with Crunch's interpretation for that reason.

And FWIW I don't claim for lunch myself; 20% of £3.50 roughly 80 days a year, I really CBA for a mind-blowing £56. Life's too short.

[jamesbrown]

Whereas what the law says is in BIM47705...

The key phrase here is "outside the normal pattern". Travelling to your usual place of work - not your temporary place of work - is not outside the normal pattern. That's also what SJD are saying.

You can claim lunch only if you go somewhere else or if, like me, you are home based and occasionally visit the client site. If you spend five days a week commuting to the client's offices, lunch is not claimable.

HTH

Hmmm, I work from home also, so I haven't looked into this carefully, but my interpretation is different, since it says:

"A deduction must be allowable for the cost of travelling to the place" AND
"the trade is an itinerant trade" OR "the trader does not travel to the place more than occasionally" (and the clause on normal patterns is a sub-clause of the latter)

In other words, assuming you can claim expenses for the cost of travel AND the trade is itinerant, meals should be allowable as part of that travel expense claim.

If you are correct (and you may be), there appears to be conflicting advice:

Contractor Doctor: Can I claim for regular lunch and food expenses?

[malvolio]

Whereas what the law says is in BIM47705...

The key phrase here is "outside the normal pattern". Travelling to your usual place of work - not your temporary place of work - is not outside the normal pattern. That's also what SJD are saying.

You can claim lunch only if you go somewhere else or if, like me, you are home based and occasionally visit the client site. If you spend five days a week commuting to the client's offices, lunch is not claimable.

HTH

[mudskipper]

SJD:

You can claim actual meal costs whilst you are working at a remote site, away from
your normal place of work, or when staying away from home overnight, but daily,
round sum claims for meals are not permitted.

[mudskipper]

http://www.nixonwilliams.com/images/...es%20Guide.pdf

"The cost of lunch can be claimed when
working at a temporary workplace. This must
be in the form of a pre-packed sandwich or a
meal at a cafe, the cost would not be allowable
if the employee was simply reimbursed
for the ingredients to prepare his/her own
packed lunch."

This is the view taken by almost all accountants, and reflects HMRC guidelines.

[malvolio]

Perhaps you two should have a read of this list. Other examples are available...

HTH

[Contreras]

For a normal working day, if you're working away from home and inside 24 months, lunch is claimable.

There seems to be a lot of misinformation about this.

... generally from the same source.

[mudskipper]

Which is all well and good apart from a couple of extra points:

• Lunch isn't always claimable, especially if you're commuting rather than staying away.

For a normal working day, if you're working away from home and inside 24 months, lunch is claimable.

There seems to be a lot of misinformation about this.

[mudskipper]

Lots. For one thing, you don't pay 40% on all your income, do you...? And it's YourCo making the saving, by offsetting expenses against CT. All you're doing is taking back money you've spent already out of income that's already been taxed; which is why you don't pay tax on it again (unless it's not a genuine business-only expense in which case the payment is a taxable benefit in kind).

But yes, for stuff you would buy anyway as a permie, such as your train ticket, the effective saving to you (rather than yourCo) is higher rate tax (+NI etc) so well over 20%.

[malvolio]

Re saving 20% - If you're a higher rate tax payer then am I right in thinking it's be a 40% saving? Or have I missed something?

Lots. For one thing, you don't pay 40% on all your income, do you...? And it's YourCo making the saving, by offsetting expenses against CT. All you're doing is taking back money you've spent already out of income that's already been taxed; which is why you don't pay tax on it again (unless it's not a genuine business-only expense in which case the payment is a taxable benefit in kind).

[SpontaneousOrder]

Re saving 20% - If you're a higher rate tax payer then am I right in thinking it's be a 40% saving? Or have I missed something?

[malvolio]

Which is all well and good apart from a couple of extra points:

• Lunch isn't always claimable, especially if you're commuting rather than staying away.
• In fact having YourCo does not give you carte blanche to charge stuff; HMRC get sniffy if you claim things you would have had to buy anyway - like lunch...
• The 24 month rule has an impact
• If you're sensible and YourCo pays business expenses rather than spending your money and reclaiming it, you won't see a direct benefit (OK, YourCo profits go up slightly meaning you can take more out) since you won't be spending anything anyway
• Expenses are just that: expenses. They are not income. Don't get them mixed up, and
• Don't get your money and YourCo's money mixed up either.

[PerfectStorm]

Thanks for your replies

I think I get it now the NW calculator is a bit misleading to me as the more expenses you enter the more take home pay you will receive but you have to pay the expenses out of your own pocket so the true figure would be to minus your expenses of the take home pay.

Exactly - it has to be stuff that is both legally allowable, and that you wanted to buy anyway.

A perfect example is lunch - you're probably used to spending a fiver or so at lunch every day right? Well when contracting, you can spend that money pre-tax - so your amount of income left to be taxed on is your income less that £5 (and any other business necessary things you buy that year).

If you choose to spend nothing on your lunch, you're still better off overall.

If you choose to spend more than £5 when you otherwise wouldn't, you'll either break even on the tax saving or just be paying more money. Your income will be taxed less, but you'll also have just bought a really expensive lunch so you kinda lose out depending on your point of view.

The "It's 20% off!" thing is confusing until you realise that every expense lessens the amount of money you'll be charged 20% on. So if you charge £500 a day for a 20 day working month, your income is 10000. Spend a fiver on lunch every day (or any other VALID business expense - refer to accountants/hmrc for that) and you now have a £100 expense. Take that away from your income and you're now being charged 20% corporation tax on £9900 rather than £10000. The odd big thing you buy - necessary for the business - such as a PC or a monthly travelcard are great examples of things that can bring this bill down further whilst remaining "things you wanted to buy anyway".