Contracting Expenses - Who pays them?

Sarastro

JamesFuller wrote: »

Hi all,

I am helping a friend who is new to contracting and potentially getting a contract soon.

He is setting it up as a Ltd company and the contract is outside IR35.

He has to travel roughly 200 miles by their own car a day in total.
Potentially stay in a hotel costing £120 a night x 2 a week.
Lunch is about £5 a day

Who pays for these expenses? Does HMRC pay them? Do they pay back this in full?

It depends on the contract he negotiates between his ltd company and the client. This will include a day rate (maybe fixed price for a piece of work) and they may pay for some travel expenses as well. If he can't negotiate to include them alongside the day rate (and I doubt he will) then it all has to come out of his day rate. All the expenses will be tax deductible so he will pay less corporation tax.

Has he considered VAT? If he's charging £300 a day or more, he may go over the VAT threshold. He should consider whether to be VAT registered from day one. It isn't necessary, but will give an air or legitimacy to the limited company and will mean that he can reclaim VAT on business expenses (e.g. if he's buying a laptop, phone, leasing a car...).

unforeseen

Although with the new limited cost trader rule unless you go over the limit for mandatory registration lots of one man contractor ltd companies are now not bothering or re-registering as it's no longer worth the effort.

jobbingmusician

You really seem not to understand it at all, so I will set it out for you.

£500 a day for 260 days - £130,000
Mileage = 260 x 200 - 52,000. So he can claim back 10,000 miles at 45p and 42,000 miles at 25p. Total mileage allowance - £15,000
Hotel stays - say 2 a week for 50 weeks - £12,000 (although I'm blowed if I can understand why he is driving 200 miles a day AND stay in an hotel).
Meal allowance - examples are given at https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim05231 Let's say £20 a day for 100 days a year. (Surely he isn't ALWAYS on the road, and some of the breakfasts, for example, may be provided by hotels)
£2000

So - total allowable deductions from these expenses = £29,000. OK, let's be generous and say £30k.

He then has taxable income of £100k.
Assuming a 'normal' tax code, he will pay no tax on the first £11,500 of this,
20% tax on the income between £11,500 and £45,000
and 40% tax on the rest.

(Note that the 'no tax' bit decreases if he has taxable income over £100k.)

BUT
The tax man might query expenses at this level. Why is he staying in an hotel almost every night? Is the hotel in a different town every night or should he be renting a flat for a few nights every week? The tax man is also reluctant to pay ALL your meal costs - we all have to eat, and the rest of us buy food out of taxed earnings......

happyandcontented

You have to factor Corporation tax in, VAT, and whether he is the only shareholder ( there are allowable tax-free dividends of 5k PA per shareholder)

A good Accountant can point you in the right direction. Expenses fall into two camps "Out of pocket" - paid from your personal account and "Business expenses" paid from your business account. Some contractors can also be paid from the end client for certain expenses - travel to a second site for example. Plus, unlike PAYE you only pay your taxes approx 18 months after the business is set up.

gettingtheresometime

happyandcontented wrote: »

You have to factor Corporation tax in, VAT, and whether he is the only shareholder ( there are allowable tax-free dividends of 5k PA per shareholder)

A good Accountant can point you in the right direction. Expenses fall into two camps "Out of pocket" - paid from your personal account and "Business expenses" paid from your business account. Some contractors can also be paid from the end client for certain expenses - travel to a second site for example. Plus, unlike PAYE you only pay your taxes approx 18 months after the business is set up.

The tax free dividend amount is £3k - we had this conversation with our accountant today!

Has he registered for self assessment?

OP it really sounds as if your mate needs an accountant rather than trying to wing it. Get a good one & they will save more in tax than they cist

happyandcontented

gettingtheresometime wrote: »

The tax free dividend amount is £3k - we had this conversation with our accountant today!

Has he registered for self assessment?

OP it really sounds as if your mate needs an accountant rather than trying to wing it. Get a good one & they will save more in tax than they cist

Currently £5k, 2k from next April as introduced in the budget.

http://citywire.co.uk/new-model-adviser/news/budget-2017-tax-free-dividend-allowance-slashed-from-5k-to-2k/a998953

gettingtheresometime

happyandcontented wrote: »

Currently £5k, 2k from next April as introduced in the budget.

http://citywire.co.uk/new-model-adviser/news/budget-2017-tax-free-dividend-allowance-slashed-from-5k-to-2k/a998953

Interesting! Will have to check with him what he was talking about as £3k was definitely mentioned

trailingspouse

The important thing is to understand that the person and the limited company are two separate entities.

So, John Smith sets up a company called JS Ltd. They are two separate entities.

A client asks JS Ltd to provide a contractor to do some work. JS Ltd decides to send John Smith (well, of course they do, he's their only contractor...). John Smith drives 200 miles there and back to do the work, and at the end of the month JS Ltd sends the client an invoice for the agreed amount.

John Smith has used his own car to drive the 200 miles, and has agreed with JS Ltd that they will pay him 45p per mile (for the first 10,000 miles and 25p per mile thereafter), so he works out how much he's owed and makes a claim from JS Ltd. JS Ltd pay him the amount of mileage he's claimed (and they can claim VAT back on it if VAT registered). JS Ltd can tax deduct the amount of the mileage.

Please advise your friend to speak with an accountant before committing to anything - most will give 30 minutes free.

sharpe106

This post made me laugh, would love the taxman to pay all my expenses for me too.

The company that contracts out to your friends new company will not care where he comes from or what else he does. They will pay the agreed fee and that is that, unless it is specialized work they will not take kindly to paying him extra for the traveling as they can employ someone closer for cheaper.

motorguy

JamesFuller wrote: »

Hi all,

I am helping a friend who is new to contracting and potentially getting a contract soon.

He is setting it up as a Ltd company and the contract is outside IR35.

He has to travel roughly 200 miles by their own car a day in total.
Potentially stay in a hotel costing £120 a night x 2 a week.
Lunch is about £5 a day

Who pays for these expenses? Does HMRC pay them? Do they pay back this in full?

As has been said already, claiming expenses from his own LTD company is to reduce his tax burden.

I live in NI but usually contract on the UK mainland. When i'm in an outside IR35 contract I claim my mileage, parking, flights, hotel costs, overnight subsistence and meal subsistence off my company.

I do that via an expenses spreadsheet I keep and "submit" monthly. I then pay myself that amount from the company account monthly. Obviously it'll vary month to month.

All those expenses come of the amount I or my company has to pay tax on at the end of the year.