Evening - expenses and opt-out question

[zappakat]

Full of silly questions at the moment as I'm pretty green to this process.

Basically I'm taking up a contracting role soon and am not sure what is "acceptable for claiming" under expenses.
I've read the Contractor Expenses guide on the right for those about to reign down upon me an ungodly firestorm

Mileage allowance for example, I've worked out I'll be doing approx 10,000 miles for the 6 months.
@ 45p per mile that's like £4500 which to me seems excessive, is this something that's going to flag to HMRC or is this acceptable?

Here comes the daft part, this is just about the taxation. I bill my expense to the company and at the end of the term that is deducted as an expense and not used in the calculations for the amount of corporate tax owed? Luckily I've employed an accountant to help me with this info but I'm just curious.

Thanks
Z

[Wanderer]

Welcome

Mileage allowance for example, I've worked out I'll be doing approx 10,000 miles for the 6 months.
@ 45p per mile that's like £4500 which to me seems excessive, is this something that's going to flag to HMRC or is this acceptable?

No that's absolutely fine and it's definitely not excessive. For example, buy a car for £10,000 run it for 3 years/30k miles and trade it in for £3,000. It's cost you £7k depreciation, £5k fuel, £3k tax/insurance/servicing, that's £15k total or £5k per year - less than the amount HMRC allow.

It doesn't mean that HMRC are going to give you £4500 though, it just means that you can reduce your company profit by £4500 pay less corporation tax.

I bill my expense to the company and at the end of the term that is deducted as an expense and not used in the calculations for the amount of corporate tax owed?

Yes.

ie, if your company makes £10,000 profit it would pay £2,000 CT (20%) and the rest of the money to you as dividends with no further tax to pay unless you are a higher rate tax payer. However, if you claim £4500 in expenses, it reduces the profit to £5500 and the CT to £1100 meaning you are £900 better off (20% of £4500) than you would be if you hadn't claimed the mileage.

Likewise, if you expense a £100/night hotel the net cost to you in lost earnings is around £80. Remember that the company money (minus taxes) is effectively your money so don't go racking up expenses and charging them to the company thinking you are getting stuff for "free" because you aren't, a more realistic way of looking at it is thinking of it as a 20% discount.

You may also want to read this post about the opt out. If in doubt, DON'T do it.

[Contreras]

Mileage allowance for example, I've worked out I'll be doing approx 10,000 miles for the 6 months.
@ 45p per mile that's like £4500 which to me seems excessive, is this something that's going to flag to HMRC or is this acceptable?

Just as a point of pedantry - an inspector can take whatever they like as a flag for a closer look, if they think you might be taking the mick.

However, yes it is acceptable (IMHO) and yes it becomes effectively tax free income to you, also reducing the company's CT bill.

10,000 miles in 6 months works out at 2 x 175 mile commutes per week + 8 x 4 mile commutes between the work-site and accommodation - perfectly reasonable and justifiable as a business expense. You will also be incurring accommodation and subsistence expenses of course, associated with the business travel, and this is acceptable as well.

Note that above 10,000 miles the BiK-free allowance falls to 25p/mile.

For the opt-out, what Wanderer said... If in doubt, don't opt out (gonna steal that for my sig ). This article in particular explains it well.

Note that being "not opted-out" is the default, do nothing, option. You don't actually need to "opt in". You can usually stall on returning the opt-out form to the agency and eventually they will give up asking.

[zappakat]

Thanks very much for the replies, especially the bit about opting out.

I actually forgot to ask the full question!

Both good links, I was concerned that although it looked more favourable opting in that by doing so I'd open myself up to IR35 concerns.
Based on that I'll remain within the regs.