'Expenses'

[Crewtart]

Not sure of this is the right part of the forum to be posting.

 

I have always maintained that, when you submit an invoice for work done and you add on expenses ( say, fuel, train fare), that when the invoice is paid in full, the expenses are not classed as taxable (as you have outlayed your own money), and thus do not need to be declared. Someone else says different. Anyone clear this up?

[paulears]

They most certainly do need to be declared. As somebody who is currently having a 'random' tax inspection, they have asked to see my mileage records to compare them with the expenses claimed. I have also got to provide copies of my hotel invoices and my private expenses that I have not inlcuded in the business accounts. The rule seems to be if you charge it, then you need documentary evidence to validate it. Getting it back, is just shown as income, spending it on the fuel etc is expenditure.

 

In fact, if you have a van, it is easier - if it's a car then calculating expenses is more difficult as they often need to split domestic and business use by an agreed percentage. All this means that you could actually make a profit on your expenses.

[Crewtart]

But then you're paying tax on money(outlay)that you've already paid tax on?? I don't understand that.

 

I use my car 95% for travel to work, but I never knew I had to keep a mileage record.

[boswell]

By the sound of it, you need an accountant. You seem to be out of your depth and will end up in big trouble with Tax & VAT people. Apologies if this seems brutal but I speak from experience!

 

Example 1

You invoice the customer for £10 for expenses and that shows up on your records as income of £10.

You have receipts for the actual expenses incurred, say £10 and this shows in you records as an expenditure of £10

Income less expenditure = profit, in this case 10-10=£0. You have not made any profit on your expenses so not tax is due.

 

Example 2

You invoice the customer for £10 for expenses and that shows up on your records as income of £10.

You have receipts for the actual expenses incurred, This time £9 and this shows in you records as an expenditure of £9

Income less expenditure = profit, in this case 10-9=£1. You have made a profit on your expenses of £1 so tax is due on £1.

 

Travel to and from work is another minefield and you do need advice

 

The above is very simplified and there are all sorts of exceptions to what and what is not allowed

 

Hope this helps.

[paulears]

Boswell summed that one up nicely!

 

I like many others, I'm sure, didn't really understand the tax system, and my accountant is positive that some of the theatrical practices re: tax and NI are 100% different from the other industries he services.

 

I have one client who will not under any circumstances pay me without deducting tax at the 22% rate, but doesn't inflict NI on me. I have another who reverses this - no tax deducted, but they take NI - which as self-employed seems to just be 'lost' just going into some mysterious pot that won't provide any extra benefits?

 

Both these companies have multi-million pound turnovers and have both been around for a long time. My accountant says that they both can't be right. What this does mean is that the PAYE deducted has to be recovered - it seems to work, but looks very strange in the accounts. All of this just complicates things to the extent that doing your own accounts is just too difficult. From comments here, it seems that many of us do our own accounts, then give them to the accountants who convert them into something completely different!

 

I don't even understand the information the revenue have asked for, and sensibly, they have contacted the accountants direct. I have two Tax Inspectors in the family, and guess what? They won't get involved at all - not even advice. The accountants fees for this inspection are going to be horrific - at least two 575W moving heads worth (as in what I won't be able to buy!). It is of course offset against the tax I will pay.

 

 

Whatever happens - you will pay tax on your profits, no matter if they are proper income, or expenses.

 

 

The tax and VAT people are actually very helpful where they can be - as my letter said, all they want to do is make sure you pay only what you should.

[Pete McCrea]

Slightly off topic, but I have seen some acountants that offer a package whereby if you do get investigated they will handle the investigation and take the hit on the costs involved. This was for a Ltd company, but when they explained what it could cost, it was quite appealing.

[paulears]

Very annoyingly, my accountant offered the insurance for just this event, for £140, and I said no!

[zonino]

Not sure of this is the right part of the forum to be posting.

 

I have always maintained that, when you submit an invoice for work done and you add on expenses ( say, fuel, train fare), that when the invoice is paid in full, the expenses are not classed as taxable (as you have outlayed your own money), and thus do not need to be declared. Someone else says different. Anyone clear this up?

 

Everything that appears on your invoice should appear in your records, as Boswell very nicely summed up you only pay tax on what profit you make. There are some things you cannot claim tax back on though (such as taking a client out to dinner)

 

But then you're paying tax on money(outlay)that you've already paid tax on?? I don't understand that.

 

I use my car 95% for travel to work, but I never knew I had to keep a mileage record.

 

You don't HAVE to keep a mileage record, but if your usage is 95% work, 5% personal, I would strongly recommend it, most people have a higher personal usage than that!

 

I have one client who will not under any circumstances pay me without deducting tax at the 22% rate, but doesn't inflict NI on me. I have another who reverses this - no tax deducted, but they take NI - which as self-employed seems to just be 'lost' just going into some mysterious pot that won't provide any extra benefits?

 

Argh, nightmare! I'd ask them why they do it that way personally (it implies very much so that you are an employee rather than self-employed)

[paulears]

rather wierdly, these people who deduct tax, give me an ID badge that says I am not an employee of the company - how strange!

[zonino]

 

indeed, very strange! Wonder how HMRC will see that!

[Bernie D]

Another point not made yet is that you can claim expenses against tax even if you have not charged them as income. For example you might buy tools that are part of your job and can offset that cost against your tax. Or if you are working away from home and buy meals you can claim the tax back on the real cost of the meal rather than the amount of expenses you get.

 

So keep all the receipts you can - parking, train fares, meals, tools and materials, PPE, anything that might be part of your job. Every £10 worth of receipts is like £2 or so to you at the end of the year.

[blackbird]

Every £10 worth of receipts is like £2 or so to you at the end of the year.

 

That's a nice way to think of it - makes things seem slightly better!

 

Had a chat with an IR advisor the other day, and apparently they will generally accept as a rule of thumb expenses on tools etc up to £100 as plain expenses, but more than that and they would question why you aren't classing it as an asset!

[Screwtape]

I use my car 95% for travel to work, but I never knew I had to keep a mileage record.

 

Careful on this point, travel to work is not travel for work. General rule is that you choose where to live and it's your responsibility to make it to the normal place of work. After that it becomes an expense, so if you live 50 miles from the depot,warehouse,venue etc that 50 miles it not a business expense. If they ask you to drive yourself to site after that you can claim expences.

 

However designers or anyone else who is able to class their main place of work to be their home can claim, so in these cases travel expenses do count. Individual contracts might also make allowances. Have a look at the BECTU or TMA regs regarding acceptable expenses its a bit of an eyeopener.

[Rowan]

My Accountant has advised me to keep a list of mileage. Every time I go on a business jolly, I write the start and end mileage down. I've only been doing it this year, but I reckon that I can claim back a lot more mileage this year than I have in the past. It's all the little journeys that add up.

 

It's a bit of a pain when you are running late, but you can claim expenses at 40ppm, so it's well worth it.

[w/robe]

I wonder if we have wandered from the question that Crewtart is asking which is about expenses that are charged to the company you are working for not those that are claimed back from Her Majesty.

 

My understanding is that if the company say 'We will pay your train fare/mileage to...' or 'We will pay for your accommodation at...' then this is not a tax deductible expense or part of your fee. Even if you pay the money initially you should claim it back from the company as expenses in the same way you would claim back any other money that you may spend on their behalf but it should NOT appear on your invoice to them for your services.

 

Think of it as if you hired some lanterns for an event.

If you hired them on behalf of the event company and they paid the invoice to White Light this has no bearing on your tax.

 

If you hire them on behalf of the event company but pay for them with your own money and then claim the money back from the event company they will end up with the receipt and still it does not effect your tax. All that has happened is that you have made them an interest free loan.

 

If you hire the lanterns personally and then hire them on to the event company (so the hire appears on your invoice), even if you charge them exactly what you paid for them you will pay tax on your hire to the event company and claim it back against your hire from White Light.