Reply to: Do reinbursed expenses count as income?

[IanIan]

Yes I think you're right.

I suppose that given the limited number of invoices and expenses I've had to deal with, it never really occurred to me to create a seperate account.

[Ardesco]

More likely they will use it as a stick to beat you with during an aspect investigation.

It may not be a legal requirement, but it makes good business sense. It stops you getting your money and your companies money mixed up. Bear in mind you have to also document everything and show the proportion of interest that is yours and the proportion of interest that belongs to the company.

If anything you are making it harder for yourself by shoving everything through your account.

[IanIan]

How do you then separate the interest you receive on the account into that accrued on the business versus personal balances?

I suppose you can't. But its not a legal requirement to have a seperate business account if you're a sole trader...

http://www.hmrc.gov.uk/pdfs/sabk4.htm#h15

...so I presume the powers that be aren't bothered.

[basshead]

Quite simple really... you add up the invoices.

How do you then separate the interest you receive on the account into that accrued on the business versus personal balances?

[IanIan]

Otherwise how do you keep track of what you owe HMRC - as a bare minimum - and be able to prove it!

Quite simple really... you add up the invoices.

[dmini]

Even like this - you need to split your "business " earnings away from your personal money - at least into a separate account in your name.
Otherwise how do you keep track of what you owe HMRC - as a bare minimum - and be able to prove it!
To echo other peoples comments YOU NEED TO TALK TO AN ACCOUNTANT.

[IanIan]

If you are self employed you have a business.

Sorry I meant to say I don't have an Ltd. But I have been careless in failing to distinguish between my personal income and the business's income. But given that I'm a sole trader and the business is called the same as me and all of the business's profits are in my personal bank account then there's not much difference.

And it sounded like you were talking about dividends when you wrote...

show how much money you are taking out of the business as your income

You are confusing your money with your businesses money. You need to separate the two or you will get in trouble further down the line.

Yes, by income, I mean what I'm paid minus expenses. When I referred to income on bank statements, I should have said the business's gross income.

Treat all money paid by the client as business income. Treat your expenses as business expenditure. Whatever is left over is profit and you can take that as your personal income. You then need to pay tax on this.

That's exactly what I'm doing.

The question is just whether to put the expenses on the form given that they were reimbursed. I think yes and so does the help line.

I was trying to reply to your statement...

If the expenses were incurred exclusively for business reasons you shouldn't have to declare that income on your tax form.

[Ardesco]

Yes I did register as self employed.

But remember I don't have a business. So everything I get paid is my personal income.

If you are self employed you have a business. If you don't think you have a business you need to read up on being self employed. You still need to keep records of your business income and expenditure, and show how much money you are taking out of the business as your income.

Yes but the guy on the advisory line said that, because the expenses were included in the total on the invoice, then I need to add them to the tax form as expenses.

I think this makes sense. Otherwise the total of one's invoices isn't going to add up to the income plus expenses specified on one's tax return. It would look like I was under reporting my income if someone were to go and add up the 'money in' on my bank statements.

You are confusing your money with your businesses money. You need to separate the two or you will get in trouble further down the line.

Treat all money paid by the client as business income. Treat your expenses as business expenditure. Whatever is left over is profit and you can take that as your personal income. You then need to pay tax on this.

You really need to talk to an accountant!

[IanIan]

Yes I did register as self employed.

You should then be able to offset business expenses against your business income before working out what you have taken out of the business.

But remember I don't have a business. So everything I get paid is my personal income.

If the expenses were incurred exclusively for business reasons you shouldn't have to declare that income on your tax form.

Yes but the guy on the advisory line said that, because the expenses were included in the total on the invoice, then I need to add them to the tax form as expenses.

I think this makes sense. Otherwise the total of one's invoices isn't going to add up to the income plus expenses specified on one's tax return. It would look like I was under reporting my income if someone were to go and add up the 'money in' on my bank statements.

[Ardesco]

That last quote is not something I said. Since you don't have a LTD company and can't take dividends IR35 won't apply to you. You will be taxed normally on all of your income (i.e. IR35 caught)

[Ardesco]

Right, in that case you're a sole trader, have you registered yourself as self employed? If not you need to do so.

You should invoice the client for the cost of the expenses, this money will in effect be your businesses money.

You should then be able to offset business expenses against your business income before working out what you have taken out of the business. If the expenses were incurred exclusively for business reasons you shouldn't have to declare that income on your tax form.

http://www.businesslink.gov.uk/bdotg...3859209&r.s=sc

See the above link for more information.

[IanIan]

Hi IanIan,
can you confirm whether the value of the expenses was paid directly to you by the client or whether it was reimbursed to you via your umbrella company?

I wasn't using an umbrella company. Thus it was paid directly to me.

So what you saying seems to be:-

- You (personally) sent an invoice for 1000 quid plus 200 expenses to some person.
- The client paid the expenses direct to you
- Some person is going to pay you 1000 not the 1200 you invoice

Nope. A company paid me the full value of the invoice in one payment.

So you don't have a company and you aren't using an umbrella?

Correct.

How are you contracted to the client?

There was no formal contract - just a round of emails saying 'will you do this?' and me saying 'yes' and for how much.

Are you a temp working for the client and being paid via PAYE?

No and no.

Warning. Being paid directly expenses incurred from the client is likely to be bad new for your IR35 status. It would be better to refuse the payment (or return it) saying "I'm sorry but the arrangement was that my company billed the expenses.

Why is this and what else would I do given that I don't have a company?

[Ardesco]

Ahh, I don't have a company. They paid me a personal check after I paid for it personally.

No umbrella. I was paid directly.

So you don't have a company and you aren't using an umbrella?

How are you contracted to the client?

Are you a temp working for the client and being paid via PAYE?

If they are paying you through PAYE they should have already dealt with the tax issue.

[ASB]

Well the dude on the help line said the same thing.

The key point is that I put the expenses on the invoice. Thus the invoice total gets added to my total income and then the expenses from the invoice are added to the total expenses on the tax return and, as you say, they cancel each other out.

Makes sense to be putting all this on the tax return.

OK,

So what you saying seems to be:-

- You (personally) sent an invoice for 1000 quid plus 200 expenses to some person.
- The client paid the expenses direct to you
- Some person is going to pay you 1000 not the 1200 you invoice

So you:-

- Put 200 in expense received type box on you personal tax return.
- Put 200 in the expenses claimed box (thus cancelling it out)

Now you need to issue a credit note to whoever you originally issued the 1200 invoice for.

If you are in fact self employed and you issued the invoice to the client directly (which seemed tyo be implied), then what is the problem? Simply put the client makes 2 payments against the income.
---------------------------
Warning. Being paid directly expenses incurred from the client is likely to be bad new for your IR35 status. It would be better to refuse the payment (or return it) saying "I'm sorry but the arrangement was that my company billed the expenses."

[LisaContractorUmbrella]

Hi IanIan,

can you confirm whether the value of the expenses was paid directly to you by the client or whether it was reimbursed to you via your umbrella company?