Help needed please on 2 types of expenses

[Project man]

Hi,

After some great advice from this site I went from contracting under an umbrella to Ltd status. I am getting VAT registration under the flat scheme at 12.5% although I am under the mandatory £67k.

I claim to and from work mileage (40ppm) and a few sundries under the limited company. I am also claiming for other mileage and receipted travel via my contract. As these are paid from my net earnings I do not put them through my business.

As an average I claim approximately £80 a week via the business which is mostly mileage and approximately £150 a week which does not go via the business. This is about £80 fuel (at 40p) and £70 receipted train or hotel bills. I total all the mileage to account for the 40p/25p mileage allowance.

Now the questions if anyone can help please.
Is this legal?
Is this the most cost effective way to do it?

I asked my accountant and they did not seem to be sure.

Thanks

 

[Zeno]

I think you are a bit mixed up.

Firstly, you (as in your company) charge your client your fees, milege and expenses in line with what you agreed with them.

Secondly, you (Personally as a Director) claim the mileage incurred from the company. It is best to use the approved rates which you say you are doing.

Why would you think this was not legal?

 

[Jenni384]

I claim to and from work mileage (40ppm) and a few sundries under the limited company. I am also claiming for other mileage and receipted travel via my contract. As these are paid from my net earnings I do not put them through my business.

As an average I claim approximately £80 a week via the business which is mostly mileage and approximately £150 a week which does not go via the business. This is about £80 fuel (at 40p) and £70 receipted train or hotel bills. I total all the mileage to account for the 40p/25p mileage allowance.

Are you claiming from home to a fixed place of work? If so, this is not allowed. You can't claim for ordinary commuting, only other travel associated with business. Using 40p/25p is just fine, for allowable miles travelled. You can't claim for fuel - this is included in the 40ppm.

When you incur expenses (eg train/ hotel) privately that were wholly, necessarily and exclusively for your business, you claim that money back from your Company - it writes you a cheque and it is then recorded as an expense in the Company's books. This is separate from your PAYE salary in terms of making payments.
You need to keep a summary of expense claims as these are reportable on form P11D at the end of the tax year.

 

[officeangel]

... with accounting qualifications will be along shortly to answer your questions properly, but I am pretty certain that your claim for mileage to and from your workplace will be subject to tax, as it's not strictly speaking a "business expense".

 

[Zeno]

Sorry, I had assumed that you were operating in the standard "contractor" way with your travel to work counting as business travel.

 

[Jenni384]

... with accounting qualifications will be along shortly to answer your questions properly, but I am pretty certain that your claim for mileage to and from your workplace will be subject to tax, as it's not strictly speaking a "business expense".

Aye, your company can choose to pay you this mileage but it will be subject to Tax and Class 1a NIC

 

[Project man]

Thanks for the replies.

Zeno - Just wanted to check the legality. I have paid tax on the money I am spending outside the company and claiming within tax rules including the 10k so I THINK it is right.

Jenni - I can be at various sites. Techincally I work from home but if I am not going to a "different" site I go to Derby. Last week for example I was 2 days in Swindon, 2 in Derby and 1 in Crewe. I only claim the derby trips via the Company and the rest outside. The 40ppm includes the fuel (sorry for the confusion).

officeangel - Surely not if I am home based.

I guess the cost effectiveness of this way of working is what I need clarification on. When using the umbrella any £100 spent on expenses would have actually cost £140 is as higher rate tax and NI however now I am Ltd this has reduced. What I cant work out is what works out best. claim £80 inside the company and £150 outside (getting 100% of the £150 back although the £150 would have been taxed as drawings and dividends) or claiming £230 inside the company and saving on Directors tax and NI.

 

[Jenni384]

If you don't have a fixed workplace, then all your travel is ok to claim.

Claim every business mile you travel personally from your company. This is tax free in your hands (as long as 40/25ppm) and an expense to the company which reduces corporation tax. Also the same with train/ hotels etc if you paid for them personally and not with company money - get the company to reimburse you. Tax free in your hands, deductible expense to the Ltd Co.

If you can claim travel costs off your client, that's a separate issue, and anything they pay you is part of your turnover.

 

[Zeno]

You are over complicating things. Do as Jenni says and you are operating in the most tax efficient manner.

You are charging VAT on your mileage and expenses aren't you?

 

[Project man]

What confuses me.... I will try and show as this example.

If I spend £100 on a receipt and claim via the company I get £100 tax free. Assuming I am paying 23% do I get £23 back?

If I claim £100 via expenses outside the company I get £100 back although this would have cost £123 assuming the same 23%?

Does this make sense?

I am waiting for my VAT registration on the flat scheme at the moment.

 

[Jenni384]

What confuses me.... I will try and show as this example.

If I spend £100 on a receipt and claim via the company I get £100 tax free. Assuming I am paying 23% do I get £23 back?

If I claim £100 via expenses outside the company I get £100 back although this would have cost £123 assuming the same 23%?

Does this make sense?

You spend £100 personally. You get £100 from the company tax free.

The company puts £100 as an expense in its profit and loss account, reducing its profit by £100 and therefore saving tax of £21 (assuming CT rate of 21%).
Assuming a standard £5425 salary/ rest dividends scenario, you are effectively paying no tax personally.
The only tax being paid is Corporation Tax.

 

[Zeno]

Right, I think I am with you.

You are forgetting that the company get a tax deduction for the expense as well as you getting 100% of the value. If the company pays tax at 20% then you are better this way.

 

[Project man]

Thanks Jenni and Zeno. I think I understand now.

 

[jholden]

I think you are getting confused, and no wonder.

Mileage claims of 40pence/25pence per mile can work out well as they are tax free in your pocket as a director/employee, and yes when you claim this personally it is paid to you tax free as these are the tax free rates.

If your company makes a claim against who ever you contract with, then this income will technically be taxed in the company (however as it will be the same as what you are claiming as an expense it essentially cancels out for tax purposes).

As long as no contract is long term/regular then your home is your office (base) and any travel from there is business.

Hope this helps.

Jason