Reply to: Expenses Reimbursement from Client for Contract inside IR35

[Lance]

What Contreras said. You're right, it's not a disbursement, but what you re-charge (net) for your associates costs is up to you (or a matter of contractual agreement with the client). HMRC only care that you charge VAT on top, not the rate at which you recharge expenses.

On the subject of non-VATable items, if you've incurred a non-VATable cost and are re-charging it to your client, and it isn't a disbursement, then you should still be charging VAT as the re-charge is part of your fee.

Gotcha. I thought the suggestion was that VAT was optional......

[TheCyclingProgrammer]

I'm pretty sure the only time you can do that is for a disbursement. And expenses are most certainly not a disbursement.

https://www.gov.uk/guidance/vat-cost...d-to-customers

The only time you don't charge VAT is if you're not registered, it's for a non VATable item (childrens' clothes and the like) or you're being paid cash

What Contreras said. You're right, it's not a disbursement, but what you re-charge (net) for your associates costs is up to you (or a matter of contractual agreement with the client). HMRC only care that you charge VAT on top, not the rate at which you recharge expenses.

On the subject of non-VATable items, if you've incurred a non-VATable cost and are re-charging it to your client, and it isn't a disbursement, then you should still be charging VAT as the re-charge is part of your fee.

[Contreras]

You don't have to add VAT to the gross amount, whether you rebill gross or net is between you and client.

I'm pretty sure the only time you can do that is for a disbursement. And expenses are most certainly not a disbursement.

https://www.gov.uk/guidance/vat-cost...d-to-customers

What TCP really means is whether you rebill gross + VAT, or net +VAT, or anything else + VAT, is between you and client.

HMRC only care about the + VAT bit.

You're right that it's not a disbursement - it rarely is.

[Lance]

You don't have to add VAT to the gross amount, whether you rebill gross or net is between you and client.

I'm pretty sure the only time you can do that is for a disbursement. And expenses are most certainly not a disbursement.

https://www.gov.uk/guidance/vat-cost...d-to-customers

The only time you don't charge VAT is if you're not registered, it's for a non VATable item (childrens' clothes and the like) or you're being paid cash

[northernladuk]

Many thanks all for your comments. Based on these I have gone back to my accountant and explained him that the travel to another location is on a need basis as and when required by the client and not something i would do regularly. He seems to now agree that it is an allowable expense which shouldn't be taxed and has promised to revert back with more clarity.

This aside how happy are you with him? Is this one case of him not understanding new legislation or is it just another error in a long running saga? I am assume this guy isn't a contractor specialist as well?

[skLondon]

Many thanks all for your comments. Based on these I have gone back to my accountant and explained him that the travel to another location is on a need basis as and when required by the client and not something i would do regularly. He seems to now agree that it is an allowable expense which shouldn't be taxed and has promised to revert back with more clarity.

[Cirrus]

The general principle of IR35 is you are really an employee so you are entitled to whatever an employee is. Money given to an employee to come to work or have lunches is taxable as a benefit-in-kind but travelling between locations is not taxed.

[northernladuk]

I'm with Mudskipper on this one, from the sounds of it at least some of your travel costs will be allowable still where they don't form 'ordinary commuting' i.e. home to work.

I agree and many of the guides back this up. Charging the client it becomes a valid business expense just as buying a server and charging them. It's not T&S.

[ContrataxLtd]

I don't think this is correct - the changes in April were so that T&S for your normal commute is no longer allowable. But T&S when the client "sends" you elsewhere is still allowable.

I'm with Mudskipper on this one, from the sounds of it at least some of your travel costs will be allowable still where they don't form 'ordinary commuting' i.e. home to work.

[mudskipper]

You invoice your days rate plus agreed expenses to the client. Since you are inside IR35, you remove the allowable expenses (pension etc) and then the flat rate of 5%, and that's your deemed income. You then pay income tax and NI on that 95%.

So the accountant is nearly right, in that you'll be taxed on 95% of the expenses charged, ie the amount invoiced minus the 5% expenses allowance.

Prior to this April, you would have been able to deduct travel and subsistence from the IR35 caught income as a valid expense before the 5%, but no longer.

I don't think this is correct - the changes in April were so that T&S for your normal commute is no longer allowable. But T&S when the client "sends" you elsewhere is still allowable.

[BlasterBates]

It seems to me that HMRC have simplified the rule so much that indeed the expenses will be taxed as income, unfair but there you go. I agree with the suggestion of including tax in the expenses.

I could imagine this sort of tax on an expense could be challenged in court..

[TheCyclingProgrammer]

Ask your accountant how to handle the VAT on the expenses - you should bill the client the gross amount and then add VAT onto that. The client may feel that you should only bill the net amount, and not add any VAT - but they're probably wrong.

Yes, being inside IR35 may result in double taxation. Adjust your daily rates accordingly.

You don't have to add VAT to the gross amount, whether you rebill gross or net is between you and client.

If you're on the standard VAT scheme it would be quite normal to only re-bill the net amount (so the gross amount is the same in both cases) and recover the VAT on your VAT return.

Likewise on the FRS your flat rate surplus should cover your VAT costs so if the client insists you re-bill the net cost then that's probably what you need to do (there is no right or wrong way).

[NotAllThere]

Since April, if you are "inside" IR35, you cannot claim (from yourCo) travel to or from the normal place of the work for the contract. But you can still claim back this sort of travel in the same way as an employee of the client could. From the limited information you have provided, I think your accountant is being over cautious (wrong!)

You invoice your days rate plus agreed expenses to the client. Since you are inside IR35, you remove the allowable expenses (pension etc) and then the flat rate of 5%, and that's your deemed income. You then pay income tax and NI on that 95%.

So the accountant is nearly right, in that you'll be taxed on 95% of the expenses charged, ie the amount invoiced minus the 5% expenses allowance.

Prior to this April, you would have been able to deduct travel and subsistence from the IR35 caught income as a valid expense before the 5%, but no longer.

Two opposite conclusions from the same data!

[missinggreenfields]

Hi,
I operate via my own ltd company and have taken up a new contract which will be inside IR35. The work involves travelling to a different location every week and staying there for a couple of days for the first month. The client has agreed to reimburse the travel and hotel bills. My accountant says that the reimbursements will be taxed as if they were my earnings. As I will be paying for the expenses out of my income which has already been taxed I don't see a point in paying tax again on the reimbursements! Is there any way to avoid this. Please suggest. Thanks

You invoice your days rate plus agreed expenses to the client. Since you are inside IR35, you remove the allowable expenses (pension etc) and then the flat rate of 5%, and that's your deemed income. You then pay income tax and NI on that 95%.

So the accountant is nearly right, in that you'll be taxed on 95% of the expenses charged, ie the amount invoiced minus the 5% expenses allowance.

Prior to this April, you would have been able to deduct travel and subsistence from the IR35 caught income as a valid expense before the 5%, but no longer.

[mudskipper]

Since April, if you are "inside" IR35, you cannot claim (from yourCo) travel to or from the normal place of the work for the contract. But you can still claim back this sort of travel in the same way as an employee of the client could. From the limited information you have provided, I think your accountant is being over cautious (wrong!)