Self employed, expenses & invoicing

Bear777

Can anyone offer me a bit of advice on how best to invoice for expenses to properly cover the cost.

I am fairly new to self employment and am trying to work out the best way to handle the cost of my business. I am likely to be hitting the higher rate tax band. As such I just wanted to check that I am doing the right thing. 

So for example I am doing a piece of work for a company in a couple of weeks time. So, I have an hourly rate that I charge or a day rate depending on the conversation. However, this work will involve a lot of travelling and as such I will incur a lot of additional costs including, mileage, parking, flights, taxis, public transport, food (subsistence) etc…

Am I right in understanding that when I invoice these items they will be included in my annual income, but they will then subsequently be viewed as an outgoing (a claimable expense) and as such will not be included in my taxable income? 

So am I right to just invoicing these expenses at a £ for £ rate and don’t add an additional percentage 20% or 40% for tax?  

The reason I am asking is that some companies that have worked for me have added an additional % beyond the cost when I’ve asked them to procure something. So, for example a design company I used added a 20% charge on top of the cost or furniture items which they sourced and paid - so they always advised me to pay for it myself. I assume this is to cover the procurement costs (time and financing costs etc…) and it isn’t about the tax aspect.? 

On a slight aside I am a little confused  about food and subsistence expenses. 

As a self employed sole trader I have done a fair bit of work miles from my place of work (a flight away and for days) and as such naturally I have purchased food. I know that food is a normal cost to everyone, but given its travel away I have fewer options to purchase food at as an affordable rate compared to when I’m living at home. I tend to not eat at restaurants, but I am incurring costs beyond my normal costs. I have also previously paid for sub contractors food costs when they have been working for me. 

I have been advised than no food costs and none of these costs can be deemed as an allowable expense. It is my understanding that food and drink can only be claimed if it is wholly and exclusively for business purposes and personal meals and lunches etc are not claimable - but if I’m in a different country is that not wholly for business purposes?? And what does it mean when it describes food expenses as wholly and exclusively for business purposes? 

Many thanks 

Bookworm225

so your business entity is that of a sole trader, not a company (it is an important distinction for what follows) 

how you present your price is entirely your decision based on what your market regards as "the norm".
- one rate covering your profit & all costs
- your profit (ie labour charge)  + itemised actual expenses
- your profit + (itemised actual expenses + markup)

do you not have an accountant? (as someone close to Higher Rate tax you should)
Those are very basic questions whose answers are simply a matter of reading the rules for the correct entity rather than us writing out the entire textbook on here.
Here are 2 hints
a) income - costs = taxable profit
b) food away from home cannot comprise raw items you then have to prepare yourself as that is just "household shopping". 

Expenses if you're self-employed: Overview - GOV.UK

Simplified expenses if you're self-employed: Overview - GOV.UK

Business expenses: allowable for tax | Low Incomes Tax Reform Group

What expenses can you claim if self-employed? | Xero UK

ButterCheese

You need an accountant (I'm sure you already have one), and they would usually work with or recommend a bookkeeper who could do all of this for you.  It is more complex than it might look initially; I know this because my partner is a bookkeeper and offers these services for people like you.

It's usually a monthly/quarterly/yearly piece of work where you provide all the invoices and receipts, and the BK will sort it all for you.  If you do it on a monthly basis it'll probably only be 1 or 2 hours a month at £25/hour

Albermarle

ButterCheese said:

You need an accountant (I'm sure you already have one), and they would usually work with or recommend a bookkeeper who could do all of this for you.  It is more complex than it might look initially; I know this because my partner is a bookkeeper and offers these services for people like you.

It's usually a monthly/quarterly/yearly piece of work where you provide all the invoices and receipts, and the BK will sort it all for you.  If you do it on a monthly basis it'll probably only be 1 or 2 hours a month at £25/hour

Although if you just send the accountant bundles of invoices and receipts for car parks, lunches, air fares etc. they would not be too happy.
You would need to supply some details of the jobs involved, and where/how any expenses were incurred ( as you would have to do if you were an employee with an expense account). 
 

Hoenir

One simplification is to use Per Diem's ( Daily Allowances).  Removes the neccessity to keep receipts for meals and incidentals. 

DullGreyGuy

Bear777 said:

Can anyone offer me a bit of advice on how best to invoice for expenses to properly cover the cost.

I am fairly new to self employment and am trying to work out the best way to handle the cost of my business. I am likely to be hitting the higher rate tax band. As such I just wanted to check that I am doing the right thing. 

So for example I am doing a piece of work for a company in a couple of weeks time. So, I have an hourly rate that I charge or a day rate depending on the conversation. However, this work will involve a lot of travelling and as such I will incur a lot of additional costs including, mileage, parking, flights, taxis, public transport, food (subsistence) etc…

Am I right in understanding that when I invoice these items they will be included in my annual income, but they will then subsequently be viewed as an outgoing (a claimable expense) and as such will not be included in my taxable income? 

So am I right to just invoicing these expenses at a £ for £ rate and don’t add an additional percentage 20% or 40% for tax?  

The reason I am asking is that some companies that have worked for me have added an additional % beyond the cost when I’ve asked them to procure something. So, for example a design company I used added a 20% charge on top of the cost or furniture items which they sourced and paid - so they always advised me to pay for it myself. I assume this is to cover the procurement costs (time and financing costs etc…) and it isn’t about the tax aspect.? 

On a slight aside I am a little confused  about food and subsistence expenses. 

As a self employed sole trader I have done a fair bit of work miles from my place of work (a flight away and for days) and as such naturally I have purchased food. I know that food is a normal cost to everyone, but given its travel away I have fewer options to purchase food at as an affordable rate compared to when I’m living at home. I tend to not eat at restaurants, but I am incurring costs beyond my normal costs. I have also previously paid for sub contractors food costs when they have been working for me. 

I have been advised than no food costs and none of these costs can be deemed as an allowable expense. It is my understanding that food and drink can only be claimed if it is wholly and exclusively for business purposes and personal meals and lunches etc are not claimable - but if I’m in a different country is that not wholly for business purposes?? And what does it mean when it describes food expenses as wholly and exclusively for business purposes? 

There is no difference if you charge them £350 per day and no expenses or £300 then an average of £50 expenses, in both cases your gross revenue is £350 and your profit £300. It would be highly unusual to have a markup on expenses, especially travel & subsistence, that would typically be the reserve of say trades people who both sell the customer the bathroom suite and install it.

Some clients will prefer a lower day rate and take a chance on the expenses. some will prefer the certainty of a fixed rate but expect to have the expenses reviewed and potentially challenged if you go with the former. When I travel for a client I tell them the cost of the transport and hotel upfront for their approval before then booking, it reduces the arguments later on if you could have gotten a cheaper flight by going an hour earlier etc. 

Yes, if you are in a different country for work, temporarily, not a place you are going to regularly etc then meals would be exclusively for business, tag on a few days to do some tourism after or end up going their regularly for the next 2+ years and then no. 

uknick

Also, read about Making Tax Digital and the software required for your returns.

SVaz

Get an accounting package - I use Freeagent - and it pretty much does it all for you by linking to your business bank account,  you simply match the expense or income to the correct category and upload a picture of a receipt/ invoice or you create a cash expense / payment.   I do get some payments in cash so I created a ‘virtual’  bank account alongside my Mettle business account to make it transparent. 

It’s all very easy once you get your head round it. 

It fills in your tax return as you go along so you always have a running tally of your next tax bill. 
MTD- ITSA is coming in next year so everything will to be done electronically - best crack on now and get used to it as you won’t have a choice. 

LITRG

Hi - well done so far. You may find our self-employment guide, with lots of info around expenses and also a full case study of how to prepare accounts and self assessment for 24/25, helpful: https://www.litrg.org.uk/working/self-employment/self-employment-guide