Foreign receipts for expenses

BISHOPS

Dear Friends,

My wife runs an online business and sells clothing. My wife designs the items in the UK. The fabric and clothes are made abroad (in teh Far East), and are paid for in-country by my wife's sister, then DHLd backed to my wife here in the UK who sells them online. Sister posts us the receipts for the fabric an manufacture which we claim against profit for income tax. We then give Sister the money via direct bank transfer or buy her things when she is over here (for instance an Ipad) to ensure that she is not out of pocket.

1. Can my wife legitimately claim the receipts as her expenses against her profit given the slightly disjointed way in which my wife buys the end products (through sister)?

2. Are there any sensitivities around claiming expenses based on foreign receipts or is a receipt a receipt in the eyes of the tax man?

Many thanks!

BISHOPS

jimmo

1 Yes of course your wife can claim all the costs of running her business as long as she doesn’t claim the same expenditure twice.

What I mean by that is if she claims on the basis of the receipts she can’t claim again when she pays her sister (but she can then claim anything she pays her sister over and above the receipts).

2 A receipt is a receipt. The most frequent stumbling block with foreign receipts is exchange rates. Strictly speaking the cost of each foreign purchase should be converted to sterling at the spot rate for the day of purchase but HMRC will accept use of its own average exchange rates.

http://www.hmrc.gov.uk/exrate/

chrismac1

Also, note that if you are doing foreign transfers of over £300 or so, you'll get much better conversion rates and lower charges with a foreign currency broker than with a standard bank system transfer.

cotswoldaccountant

jimmo wrote: »

What I mean by that is if she claims on the basis of the receipts she can’t claim again when she pays her sister (but she can then claim anything she pays her sister over and above the receipts).

She can't claim anything she pays her sister over and above the receipts - her claim would be limited to the amount of the receipts.

If my friend buys £200 of goods for my business for me, and I buy my friend a £250 Ipad (for her own personal use, rather than anything to do with the business), I can still only claim the £200 as legitimate business expenses.

jimmo

cotswoldaccountant wrote: »

She can't claim anything she pays her sister over and above the receipts.

Why not? If your friend provides a service to your business it is, I think, perfectly legitimate for your business to pay for the service it has received and claim the appropriate deduction.

On the other hand, if your business claims the deduction there is a very good chance that your friend will be regarded as having taxable income for what she has been paid by your business (in money or in kind) but her own circumstances may mean that her tax liability is nil.

I would suggest there is a possible tax saving opportunity there.

antrobus

jimmo wrote: »

....
2 A receipt is a receipt. The most frequent stumbling block with foreign receipts is exchange rates. ..

Another frequent stumbling block with foreign receipts is that they're often not in English.:)

cotswoldaccountant

jimmo wrote: »

Why not? If your friend provides a service to your business it is, I think, perfectly legitimate for your business to pay for the service it has received and claim the appropriate deduction.

On the other hand, if your business claims the deduction there is a very good chance that your friend will be regarded as having taxable income for what she has been paid by your business (in money or in kind) but her own circumstances may mean that her tax liability is nil.

I would suggest there is a possible tax saving opportunity there.

Yes, if the sister is providing a service then that can indeed be claimed. I would expect to see an invoice for the service provided by the sister though - a receipt for an Ipad would not really be sufficient.