Reply to: Expenses reimbursed directly to individual

[Martin at NixonWilliams]

I've had this come up from time to time. What should one do if we can't avoid it? Does it get declared anywhere or do we just forget about it?

It would probably be ok to leave it undeclared, it's not as if you have benefitted in any way. However, to be on the safe side I would suggest completing the 'other UK income' section on page TR3 of the tax return. Boxes 16 and 17 are available for casual income and expenses related to that income, the two would just cancel each other out but at least it has been declared.

[Wanderer]

avoid the arrangement if this is possible.

I've had this come up from time to time. What should one do if we can't avoid it? Does it get declared anywhere or do we just forget about it?

[northernladuk]

What makes you think the gig is inside IR35?

Big fails on some of the contract/working conditions and they won't back down?

[ContractorsSpouse]

Clare's point is correct and is a common way of dealing with this sort of thing if you do not want to risk upsetting the relationship you have with your client by standing your ground - though I don't agree with companies forcing contractors into doing this purely because they do not want to pay the VAT.

I suppose you ought to consider how much is at stake, you said it is a one-off so providing it is only a one-off Clare's solution is probably the best option for you under the circumstances.

Indeed. I think we've raised the issue with them as far as we can, it's time to bend over... err... I mean '...offer a compromise acceptable to all parties'. Thanks for the reply

[Martin at NixonWilliams]

Clare's point is correct and is a common way of dealing with this sort of thing if you do not want to risk upsetting the relationship you have with your client by standing your ground - though I don't agree with companies forcing contractors into doing this purely because they do not want to pay the VAT.

I suppose you ought to consider how much is at stake, you said it is a one-off so providing it is only a one-off Clare's solution is probably the best option for you under the circumstances.

[ContractorsSpouse]

This makes more sense now - The services provided by banks are exmpt from VAT, and so they cannot reclaim the VAT they pay.

It is still wrong of them to ask you this in my opinion, they are contracted to your business and therefore your business should incur and recharge such costs.

My advice stands in that you should avoid the arrangement if this is possible.

Martin

Right, indeed, this helps to understand their motive. Thanks for the insight.

[ContractorsSpouse]

If they absolutely refuse then you could offer an alternative - bill through the company but reduce the value of the expenses to the net + VAT value they are happy to pay. Your company will lose out slightly, but at least it's all done through the company rather than personally.

Yes, perhaps this is what we'll end up suggesting to them. If their motive is mainly avoiding un-reclaimable VAT then hopefully they will accept this. We will suck up the lost VAT (or conceptually offset it against our Flat Rate revenue ).

Thanks for the suggestion!

[ASB]

Bank pays the company expenses plus VAT, then claims the VAT back.

I have a recollection of there being some difficulties with banks reclaiming VAT.

It could possibly be the case that the VAT is not reclaimable by the end client; thus trying to avoid being billed it in the first place.

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Oops missed Martins reply.

[Clare@InTouch]

If they absolutely refuse then you could offer an alternative - bill through the company but reduce the value of the expenses to the net + VAT value they are happy to pay. Your company will lose out slightly, but at least it's all done through the company rather than personally.

[Martin at NixonWilliams]

The client is a bank; apparently this somehow limits their ability to reclaim VAT, and is the reason (or at least one of the reasons) they do this.

This makes more sense now - The services provided by banks are exmpt from VAT, and so they cannot reclaim the VAT they pay.

It is still wrong of them to ask you this in my opinion, they are contracted to your business and therefore your business should incur and recharge such costs.

My advice stands in that you should avoid the arrangement if this is possible.

Martin

[TheFaQQer]

The client is a bank; apparently this somehow limits their ability to reclaim VAT, and is the reason (or at least one of the reasons) they do this.

Bank pays individual the expenses.

Bank pays the company expenses plus VAT, then claims the VAT back.

Zero sum game, which adds to your inconvenience and might cost you more.

I'd tell them that unfortunately, you've taken professional advice and have been advised not to accept individual payments directly.

[ContractorsSpouse]

Have they explained their reasons for wanting to avoid the expenses being paid through the company? It sounds like they are trying to avoid the VAT, however if they are VAT registered it is unlikely to cost them any extra.

It is possible for you to act as the agent instead of your company, but this could also come at a cost to you if you are on the flat rate scheme as you will lose out on the additional income. There is also the impact this has on your personal cash flow of course, what if you are not paid? I'd rather the company suffer the bad debt and get tax relief etc than be out of pocket personally.

My advice would be to avoid this arrangement unless there is a plausible reason for doing it.

I hope this helps.

Martin

The client is a bank; apparently this somehow limits their ability to reclaim VAT, and is the reason (or at least one of the reasons) they do this.

[Project Monkey]

What did your accountant suggest?

Ask NLUK. He'll know for sure.

[Martin at NixonWilliams]

Client has offered to cover expenses for a one-off overseas trip. Client is paying some items directly, but wants to book accommodation (preferential rates) and accommodation needs to be paid for at checkout by the individual. Client wants to reimburse the individual staying/paying directly. They do not want OurCo to invoice Client.

Have they explained their reasons for wanting to avoid the expenses being paid through the company? It sounds like they are trying to avoid the VAT, however if they are VAT registered it is unlikely to cost them any extra.

It is possible for you to act as the agent instead of your company, but this could also come at a cost to you if you are on the flat rate scheme as you will lose out on the additional income. There is also the impact this has on your personal cash flow of course, what if you are not paid? I'd rather the company suffer the bad debt and get tax relief etc than be out of pocket personally.

My advice would be to avoid this arrangement unless there is a plausible reason for doing it.

I hope this helps.

Martin

[TheFaQQer]

I'd ask the accountant whether if you were forced to go the route that the client suggests, would you need to declare the expenses being reimbursed as unearned income?