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Paid expenses put me in IR35?

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    #11
    What is the surplus, about 2.5% ish when you get to charge gross exp + VAT. Need to claim for a lot of trains etc to cover loss of £17 each time you stay in a hotel.
    DORMANT ACCOUNT

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      #12
      Originally posted by kyber View Post
      What is the surplus, about 2.5% ish when you get to charge gross exp + VAT. Need to claim for a lot of trains etc to cover loss of £17 each time you stay in a hotel.
      Not quite. I'm talking about the surplus from your daily rate, not your expense charges. Presumably you're only incurring expenses in the first place as you're doing a day of billable work in most cases?

      Train fares aren't a good example as they are zero rated anyway (so you would always be recharging them at gross cost) but let's say on a given day, you incur VATable expenses of £20 + VAT (£24 gross). Your daily rate is £500 and your client has asked you to recharge expenses net of VAT.

      Total costs incurred by you: £24
      Total billed to the client for they day: £520 + VAT (£604)
      Income after deducting FRS percentage: £516
      Gross profit: £492

      Now recharging the gross amount:

      Total costs incurred by you: £24
      Total billed to the client for they day: £524 + VAT (£604.80)
      Income after deducting FRS percentage: £517
      Gross profit: £493

      So overall you're only £1 worse off in the above example by recharging the net instead of the gross. You're not exactly running at a loss are you? You've recovered the net cost of your expenses in full and the £16 of FRS surplus in the first example more than covers the £4 of VAT you were unable to reclaim from HMRC or recharge to the client.

      TLDR; recharge expenses at gross if you're able to when you're on the FRS, but don't get too worked up if the client insists on recharging net cost only unless you're incurring some serious expenditure. It doesn't save you much and your FRS should cover your costs in most cases and it isn't worth making a big deal out of.
      Last edited by TheCyclingProgrammer; 21 May 2014, 18:46.

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        #13
        Referenced trains because 0 rated and therefore make you money under FRS. Point was you make a loss on vat rated expenses under FRS on net expense recovery. Might be small compared to daily rate but worth keeping in mind. A £400 hotel and evening meals bill for a few nights in London would cost you £58.
        DORMANT ACCOUNT

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