What is the tax treatment for billable expenses ?

[aucomptoir]

Thanks very much, I get it now. To date, I have paid for the expenses through my personal credit card, which seemed to be Ok according to my accountant. From now on, just to be sure, I'll use my Co. credit card.

[oraclesmith]

Firstly, you need to be crystal clear about the legal entities involved. There is you as a private individual, there is the client and there is the limited company which you are a director of. What is not clear from your post is whether the expenses etc are coming out of your private bank account or the company.

Don't get into the situation where you are paying one amount from your own pocket but claiming a completely different (higher) amount from your limited. Any personal reimbursement needs to be just that- an exact reimbursement. With some exceptions like business mileage in your own vehicle. Which is why it is much more straightforward if your limited pays any business expenses directly and does not involve you as a private individual (or your personal bank account).

Your limited company, however, can charge the client what it likes within the terms of the contract for attendance at their sites. So your company could charge the client much more in theory (and this actually occurs in larger consultancies who often add admin charges), but most contracts only allow your limited company to charge the actual cost of expenses...PLUS VAT.

If the expenses are wholely, exclusively and necessarily for business purposes, then there is no benefit-in-kind involved. A benefit-in-kind (BIK) is like your company providing you with a new car or private healthcare or some other personal benefit, all of which are taxable.

Most business entertainment (except your £150 per person allowance for staff functions etc) is also a BIK so you need to be careful that your business expenses don't contain anything which could be regarded as entertainment (eg. booze-laden outings to pubs, lap dancing clubs, wine bars, cinema, theatre, concerts etc, etc, etc).

But if your company sends you to work at some client site in a foreign land then your hotel bill and air fares etc are paid from the company. There is no benefit in kind involved because you're there to work, right? You're not on holiday.

It makes no sense for individuals to be taxed on business expenses, otherwise companies would never get employees to travel on business, would they ?


The easiest way of making sense of the limited company contract world is to pretend your limited company is actually much larger than just you. If you have ever worked as a permie, then you can better relate to the business expenses situation, because you probably have experienced it as an employee of a larger firm.

If you have a qualified accountant, then they will know best.

[aucomptoir]

Apologies for the confusion. I just wanted to know if the expenses reimbursed to me by my client for airfares and hotels is taxable, or untaxable.

I originally consulted with my accountant, who said that I should record these expenses in my accounting records under “income received”. Then, when the tax year ends, he will complete something called a P11D form which declares any expenses that I have been reimbursed by the client. Those reimbursements are tax-free, or so I understood.

But then I had conflicting advice, hence my first post.

[Gonzo]

Thanks. Ok, so I pay from my co. bank account. But just so I'm clear, the travel and accommodation expenses I charge and recover from my client are subject to tax ?

Are you asking if you should be charging VAT on them?

If so then the answer is yes.

[tim123]

Thanks. Ok, so I pay from my co. bank account. But just so I'm clear, the travel and accommodation expenses I charge and recover from my client are subject to tax ?

No, that is not what the previous posts said.

tim

[aucomptoir]

Thanks. Ok, so I pay from my co. bank account. But just so I'm clear, the travel and accommodation expenses I charge and recover from my client are subject to tax ?

[oraclesmith]

I agree. The safest and most straightforward way is to pay all travel to client sites and related (reasonable) hotel costs direct from the company accounts. It's pretty much answered by this section of the regs.

7.1 An employee’s remuneration for tax purposes is reduced by the cost of journeys
• he or she has to make in the performance of the duties of the employment, or
• to a workplace he or she has to attend to carry out the duties of the employment,
but not if the journey is ordinary commuting or private travel.

The employee is also entitled to a deduction for any other expenses which are incurred
Section 336 wholly, exclusively and necessarily in the performance of the duties of the employment,
(but see Chapter 20 for an exception for some entertaining expenses).


Try to avoid putting them through your personal bank account if possible.

Re. billing; I never bill 'expenses', but I do charge for attendance at a specific client site.

Also, be careful about any regular journeys to the client being regarded as commuting. ie. the 2 year rule.

In my opinion.

[Sockpuppet]

Well pay for all the airfiars from the coy account.

If they cost you £1.5k then the net effect is negligablebecuase £1.5k - £1.5k =£0

If they cost you £1 then you are making an extra 0.5k profit. as £1.5k - £1k = £0.5k

Which will go towards the company profit.

Company profit is taxed at 21%.

[aucomptoir]

I've just finished reading HRMC expenses and benefits guide, but I'm still not clear on this. I operate as a Ltd Co., I invoice my client £8K per month, plus £1.5K in airfares and hotels. Result : £9.5K goes into my company bank account. What is the tax treatment on the £1.5K ? Is it a tax-free reimbursement, or is it subject to the same tax treatment as billable expenses ? Thanks.