Expenses, Corp Tax and Dividends Expenses, Corp Tax and Dividends
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  1. #1

    Nervous Newbie


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    Default Expenses, Corp Tax and Dividends

    Afternoon all


    I've been contracting since July and the majority of what I earn is profit, the company I am contracted to at the moment pay all flights, accommodation and all other expenses such as train tickets, taxi fares and anything else I might need to do my job can be claimed back from the company. Therefore my overheads are minimal.

    Can I still use the tickets etc as an expense with regards my own bookkeeping to reduce tax liability? I am a limited company taking a mixture of salary and dividends. I have been logging mileage as well at the 45p rate and have so far logged some £3k in expenses. I noticed my corporation tax prediction in cloud accounting software has fallen to reflect this, but also my retained profits/distributable reserves has dropped also.

    As the company covers all my expenses, would it be in my best interests to claim the expenses and lower my tax burden and seemingly the amount i can take as a dividend, or not claim the expenses and maximise the amount I can withdraw as a dividend and pay more corporation tax?

    I have tried to understand this area.. but struggling a little.

    Thanks

  2. #2

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    Craig at Nixon Williams's Avatar
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    Has the client paid for the expenses directly? Or have you/your company paid the expense and the client reimbursed you for the outlay?

  3. #3

    Contractor Among Contractors


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    If the client already pays for your travel/accommodation etc. you shouldn't claim them again from YourCo.

    As for the dividends vs expenses it's simple one is coming pre-tax the other post-tax

    Example A:
    In a given period YourCo have invoiced the client(s) for 10k, you have 1k claimable expenses like travel, hotel, meals etc. and you claim them the result will be:
    10k income - 1k expenses => 9k profit - 1800 corporate tax => 7200 post tax profit that can be distributed as dividends

    The result is 1k+7.2k=8.2k in your pocket

    Example B:
    In a given period YourCo have invoiced the client(s) for 10k, you have 1k claimable expenses like travel, hotel, meals etc. and you don't claim them the result will be:

    10k income - 0 expenses => 10k profit - 2k corporate tax => 8 post tax profit that can be distributed as dividends

    The result is 8k in your pocket


    Hope this helps

  4. #4

    Should post faster


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    Quote Originally Posted by aai View Post
    Afternoon all


    I've been contracting since July and the majority of what I earn is profit, the company I am contracted to at the moment pay all flights, accommodation and all other expenses such as train tickets, taxi fares and anything else I might need to do my job can be claimed back from the company. Therefore my overheads are minimal.

    Can I still use the tickets etc as an expense with regards my own bookkeeping to reduce tax liability? I am a limited company taking a mixture of salary and dividends. I have been logging mileage as well at the 45p rate and have so far logged some £3k in expenses. I noticed my corporation tax prediction in cloud accounting software has fallen to reflect this, but also my retained profits/distributable reserves has dropped also.

    As the company covers all my expenses, would it be in my best interests to claim the expenses and lower my tax burden and seemingly the amount i can take as a dividend, or not claim the expenses and maximise the amount I can withdraw as a dividend and pay more corporation tax?

    I have tried to understand this area.. but struggling a little.

    Thanks
    So neither you nor your company has incurred the expenses but you want to falsify your company accounts to make it appear that it has in order to reduce either PAYE or CT payable to HMRC? Or have I misunderstood?

    You could do that but the company accounts thing is fraud and you'd also be guilty of tax evasion.

  5. #5

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    Craig, as it stands for flights and accommodation these are arranged and paid for me in advance.

    Trains, taxis etc are claimed via a timesheet with a scanned receipt. I also receive a daily allowance, claimed via timesheet and I invoice for all these, and although invoiced separately from my hours, it is generally paid in one lump sum.

    Sal, seems as though I shouldn't claim my travel expenses as these are reimbursed in full in this case. The mileage in question is travelled in a hire car which is also provided by the company, and fuel receipts are fully reimbursed by the company. So I am presuming the only expenses I can legitimately claim are accounting fees etc.

    Thanks for the helpful replies

  6. #6

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    Quote Originally Posted by aai View Post
    , the company I am contracted to at the moment pay all flights, accommodation and all other expenses such as train tickets, taxi fares and anything else I might need to do my job

    Can I still use the tickets etc as an expense with regards my own bookkeeping to reduce tax liability?
    Maybe if I identify two sentences it might become a little clear to you what you are about to do.

    This is pretty basic stuff so if you are struggling with this I would strongly suggest you a) learn about it and fast or/and b) Speak to your accountant who you pay to answer these types of questions from which you may learn a little more.

    You are legally responsible for all this when you sign off your accounts at the end of every year so time to step up I am afraid. It's hardly rocket science.

    I presume this is exactly how permies operate as well is it??
    Last edited by northernladuk; 15th October 2014 at 15:46.
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  7. #7

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    Craig at Nixon Williams's Avatar
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    Quote Originally Posted by aai View Post
    Craig, as it stands for flights and accommodation these are arranged and paid for me in advance.

    Trains, taxis etc are claimed via a timesheet with a scanned receipt. I also receive a daily allowance, claimed via timesheet and I invoice for all these, and although invoiced separately from my hours, it is generally paid in one lump sum.
    In that case, the flights and accommodation shouldn't be claimed as you haven't actually incurred an expense. The other expenses where you have paid out can be claimed for. If you are billing the client for the expenses then there will be no effect on profit, as turnover will increase by the same amount as the expense.

    Hope this helps!
    Craig

  8. #8

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    I am attempting to learn a lot, hence why I am here, reading books and speaking to accountant. Waiting for my accountant to get back to me so I sought some more opinion from others. Learning what I can in between working 84 hour weeks but your concern is appreciated.

  9. #9

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    Quote Originally Posted by Craig at Nixon Williams View Post
    In that case, the flights and accommodation shouldn't be claimed as you haven't actually incurred an expense. The other expenses where you have paid out can be claimed for. If you are billing the client for the expenses then there will be no effect on profit, as turnover will increase by the same amount as the expense.

    Hope this helps!
    Craig
    Thanks craig, cleared that up, much appreciated.

  10. #10

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    Quote Originally Posted by aai View Post
    I am attempting to learn a lot, hence why I am here, reading books and speaking to accountant. Waiting for my accountant to get back to me so I sought some more opinion from others. Learning what I can in between working 84 hour weeks but your concern is appreciated.
    Indeed. The problem you have in your situation is not knowing what you don't know. Finding out as and when it occurs isn't the best way forward. There could be a problem bubbling for years and you won't know until something happens. Not a good way to run a business.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

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