Is every invoice treated as profit??

[nick1122]

You are missing the fact that the company paid you £100, when you claimed the expense back. That "reduces" profit (and therefore CT tax) by £100, or £20 of tax. So it is net zero effect on the companies tax position (excluding the VAT amounts).

Ah, I get it now (finally)!! I can now see that others have also tried to say the same thing. Thanks for the replies.

[Underbase]

Thanks for all the replies. I understand few things but still not very clear.

Say I paid £100 from my personal account for an expense. Then I claim it from my ltd company and that offsets each other. So far so good.

Now my company invoices the client for £100 + VAT. Client pays my company £120. Company pays VAT of £20 (little less as on flat rate) to HMRC. Now if the company has to pay £20 as Corp tax, isnt the company making a loss of £20?? Had I not incurred this expense, then my company would have been better off by £20? Or am I missing something here?

Thanks
Nick

You are missing the fact that the company paid you £100, when you claimed the expense back. That "reduces" profit (and therefore CT tax) by £100, or £20 of tax. So it is net zero effect on the companies tax position (excluding the VAT amounts).

[nick1122]

Thanks for all the replies. I understand few things but still not very clear.

Say I paid £100 from my personal account for an expense. Then I claim it from my ltd company and that offsets each other. So far so good.

Now my company invoices the client for £100 + VAT. Client pays my company £120. Company pays VAT of £20 (little less as on flat rate) to HMRC. Now if the company has to pay £20 as Corp tax, isnt the company making a loss of £20?? Had I not incurred this expense, then my company would have been better off by £20? Or am I missing something here?

Thanks
Nick

[mudskipper]

What they both said.

You've paid for the expense out of what would have been profit if the expense hadn't occurred. The client is willing to cover the cost by paying an extra one off invoice you raise, so that restores the previous profit. Profits incur corporation tax.

Status Quo - The Official Site

[TykeMerc]

This was exactly my thought. He already expensed / reimbursed himself. So any funds that the client gives him are profit and taxable.

It's funny how quickly we can assume that someone is being an idiot when we either don't know the whole story or haven't thought it through from his perspective.

What they both said.

You've paid for the expense out of what would have been profit if the expense hadn't occurred. The client is willing to cover the cost by paying an extra one off invoice you raise, so that restores the previous profit. Profits incur corporation tax.

[WordIsBond]

In defence of the accountant, if the expenses have already been "expensed" through the company, then the reimbursement invoice will be profit. Probably the accountant is only guilty of not explaining things clearly.

This was exactly my thought. He already expensed / reimbursed himself. So any funds that the client gives him are profit and taxable.

It's funny how quickly we can assume that someone is being an idiot when we either don't know the whole story or haven't thought it through from his perspective.

[Alan @ BroomeAffinity]

In defence of the accountant, if the expenses have already been "expensed" through the company, then the reimbursement invoice will be profit. Probably the accountant is only guilty of not explaining things clearly.

[v8gaz]

Probably not. I think the OP misunderstands the difference between income, expenditure and profit.

Or his accountant doesn't. OP clearly states that he claimed the amount from his Ltd as an expense.

[Michael at BI Accountancy]

Hi Nick,

I believe what your accountant is trying to say is the expense is treated as a sale. However the company also claims for the expense which offsets against the sale raised.

It is also important to charge VAT on the price in which you paid, or you will end up out of pocket.

E.g You book a hotel for £100.

You should then claim £100 back from the company (if paid personally). Your company then claims the £100 as a travel expense.

...You then put an invoice in with your client, x amount for the week worked. Plus expenses incurred £100+VAT= £120.

The company will then receive the £120 as a sale from the client.

So the company has a sale of £100+VAT, but also is claiming £100 as an expense.

As for the VAT on the above sale you will make a small gain (if your on the FRS).

Hope this helps.

Michael

[tractor]

....

You need a new accountant.

Probably not. I think the OP misunderstands the difference between income, expenditure and profit.

[tractor]

...

Hi All,

I incurred some expense (hotel accommodation) when I visited a different location of my client. I paid for it personally and claimed it from my ltd company as an expense.

My client told me to raise an invoice so that they can pay my company for this expense. Now my accountant is saying that the invoice will be treated as profit to the company and I will have to pay corporation tax etc. I fail to understand how this can be treated as profit. Is this correct?

Thanks for your help.
Nick

It will only become a taxed profit if you do not claim the entire amount as an expense. In which case, CT would be chargeable on the amount invoiced but not claimed by you. Of course, you would claim the expense in its entirety so this anomaly would not arise.

£100 goes on your Sales Account and £100 comes off your Expense Account resulting in £0.

Where else do you think you would assign the income? If you failed to understand it when your accountant explained, why didn't you ask them to clarify?

[v8gaz]

You need a new accountant.

[nick1122]

Hi All,

I incurred some expense (hotel accommodation) when I visited a different location of my client. I paid for it personally and claimed it from my ltd company as an expense.

My client told me to raise an invoice so that they can pay my company for this expense. Now my accountant is saying that the invoice will be treated as profit to the company and I will have to pay corporation tax etc. I fail to understand how this can be treated as profit. Is this correct?

Thanks for your help.
Nick