Expenses Reimbursement from Client for Contract inside IR35 Expenses Reimbursement from Client for Contract inside IR35
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  1. #1

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    Default Expenses Reimbursement from Client for Contract inside IR35

    Hi,
    I operate via my own ltd company and have taken up a new contract which will be inside IR35. The work involves travelling to a different location every week and staying there for a couple of days for the first month. The client has agreed to reimburse the travel and hotel bills. My accountant says that the reimbursements will be taxed as if they were my earnings. As I will be paying for the expenses out of my income which has already been taxed I don't see a point in paying tax again on the reimbursements! Is there any way to avoid this. Please suggest. Thanks

  2. #2

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    YourCo should be invoicing the client for the expenses and it should be recorded as company income, regardless of IR35 status. Being inside IR35 affects how you can claim money back from YourCo for your out of pocket costs but it doesn't stop YourCo billing for those costs if the client has agreed.

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    Ask your accountant how to handle the VAT on the expenses - you should bill the client the gross amount and then add VAT onto that. The client may feel that you should only bill the net amount, and not add any VAT - but they're probably wrong.

    Yes, being inside IR35 may result in double taxation. Adjust your daily rates accordingly.
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  4. #4

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    Since April, if you are "inside" IR35, you cannot claim (from yourCo) travel to or from the normal place of the work for the contract. But you can still claim back this sort of travel in the same way as an employee of the client could. From the limited information you have provided, I think your accountant is being over cautious (wrong!)

  5. #5

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    Quote Originally Posted by skLondon View Post
    Hi,
    I operate via my own ltd company and have taken up a new contract which will be inside IR35. The work involves travelling to a different location every week and staying there for a couple of days for the first month. The client has agreed to reimburse the travel and hotel bills. My accountant says that the reimbursements will be taxed as if they were my earnings. As I will be paying for the expenses out of my income which has already been taxed I don't see a point in paying tax again on the reimbursements! Is there any way to avoid this. Please suggest. Thanks
    You invoice your days rate plus agreed expenses to the client. Since you are inside IR35, you remove the allowable expenses (pension etc) and then the flat rate of 5%, and that's your deemed income. You then pay income tax and NI on that 95%.

    So the accountant is nearly right, in that you'll be taxed on 95% of the expenses charged, ie the amount invoiced minus the 5% expenses allowance.

    Prior to this April, you would have been able to deduct travel and subsistence from the IR35 caught income as a valid expense before the 5%, but no longer.

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    Quote Originally Posted by mudskipper View Post
    Since April, if you are "inside" IR35, you cannot claim (from yourCo) travel to or from the normal place of the work for the contract. But you can still claim back this sort of travel in the same way as an employee of the client could. From the limited information you have provided, I think your accountant is being over cautious (wrong!)
    Quote Originally Posted by missinggreenfields View Post
    You invoice your days rate plus agreed expenses to the client. Since you are inside IR35, you remove the allowable expenses (pension etc) and then the flat rate of 5%, and that's your deemed income. You then pay income tax and NI on that 95%.

    So the accountant is nearly right, in that you'll be taxed on 95% of the expenses charged, ie the amount invoiced minus the 5% expenses allowance.

    Prior to this April, you would have been able to deduct travel and subsistence from the IR35 caught income as a valid expense before the 5%, but no longer.
    Two opposite conclusions from the same data!
    Down with racism. Long live miscegenation!

  7. #7

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    Quote Originally Posted by NotAllThere View Post
    Ask your accountant how to handle the VAT on the expenses - you should bill the client the gross amount and then add VAT onto that. The client may feel that you should only bill the net amount, and not add any VAT - but they're probably wrong.

    Yes, being inside IR35 may result in double taxation. Adjust your daily rates accordingly.
    You don't have to add VAT to the gross amount, whether you rebill gross or net is between you and client.

    If you're on the standard VAT scheme it would be quite normal to only re-bill the net amount (so the gross amount is the same in both cases) and recover the VAT on your VAT return.

    Likewise on the FRS your flat rate surplus should cover your VAT costs so if the client insists you re-bill the net cost then that's probably what you need to do (there is no right or wrong way).

  8. #8

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    It seems to me that HMRC have simplified the rule so much that indeed the expenses will be taxed as income, unfair but there you go. I agree with the suggestion of including tax in the expenses.

    I could imagine this sort of tax on an expense could be challenged in court..
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    TPAFKAk2p2

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    Quote Originally Posted by missinggreenfields View Post
    You invoice your days rate plus agreed expenses to the client. Since you are inside IR35, you remove the allowable expenses (pension etc) and then the flat rate of 5%, and that's your deemed income. You then pay income tax and NI on that 95%.

    So the accountant is nearly right, in that you'll be taxed on 95% of the expenses charged, ie the amount invoiced minus the 5% expenses allowance.

    Prior to this April, you would have been able to deduct travel and subsistence from the IR35 caught income as a valid expense before the 5%, but no longer.
    I don't think this is correct - the changes in April were so that T&S for your normal commute is no longer allowable. But T&S when the client "sends" you elsewhere is still allowable.

  10. #10

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    Quote Originally Posted by mudskipper View Post
    I don't think this is correct - the changes in April were so that T&S for your normal commute is no longer allowable. But T&S when the client "sends" you elsewhere is still allowable.
    I'm with Mudskipper on this one, from the sounds of it at least some of your travel costs will be allowable still where they don't form 'ordinary commuting' i.e. home to work.

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