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Are subcontractors deemed as employees for entertainment expenses

Are subcontractors deemed as employees for...

Hi

My client (Ltd company) carries out ecological surveys all over the UK (he is based in the Highlands of Scotland). Sometimes he contracts with a subcontractor and he will pick up any travel, accomodation and food costs associated with carrying out this work.

I am looking to confirm that he can claim 100% vat on this expenditure as during this time the contractor is 'employed' by him and that these costs are fully tax deductible.

Kind Regards

Melissa

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By BKD
25th Jan 2013 11:59

Status?

Just hope that an eagle-eye at HMRC doesn't pick up the use of 'employed' in your question ;)

Your title is misleading, though - you mention entertainign but that doesn't appear anywhere in the main question.

In whose name are the costs incurred (particularly the accommodation)?

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25th Jan 2013 12:46

A true subcontractor should pick up his own costs and then bill - it all helps with badges of trade to avoid an "employment" situation.

I expect to treat these costs as incurred for and on behalf of a supplier not try and add them as employment related. As BKD pointed out - you don't want to be explaining to an inspector why youhjave treated the cost as employment related for one tax and not for another.

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25th Jan 2013 13:12

On the other hand...

... whilst it doesn't deal with the VAT position, BIM45045 may be helpful as the underlying principles have much in common.

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25th Jan 2013 20:02

Surely this isn't entertaining but travel and subsistence. Also it's a disbursement of the ltd co consultant and should be billed (and vat charged if registered) in the same way as he would bill for his time. As already mentioned the arrangement you mentioned in your question would surely compromise any IR35 defence if his status was challenged.

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30th Jan 2013 09:24

That helps, thank you

Thank you for your comments.

As correctly pointed out my title was in fact misleading and in true they are travel and subsistence expenses. The costs will be invoiced on one invoice i.e. 2 nights for 2 rooms at a B&B so could be split out. Food tends to be that he just picks up the bill - harder to split out.

I take on the points raised and will speak to my client about changing the way he does things. This stared as a one off contractor but as he grew was using them more frequently.

I agree that the best option is for his contractors to bill as this will ensure IR35 is clear.

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