What are the implications of cpy paying subbies' hotel bills?

What are the implications of cpy paying subbies...

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I am used to subcontractors invoicing the contracting company for time, hotels, travel etc.  (This is not a CIS question) My client uses contractors on a regular basis, but each job only lasts 2-3 days, maybe on 20 occasions a year, so not enough to suggest employee status.  However, he pays for their Travelodge-type hotels, as he books for the whole crew and pays up front.  I cannot actually think of a reason why he should not.  As it would be difficult to argue that the subcontractors are actually employed, there is no P11D type implication and my client company would pay the costs if invoiced by the subbie, so there is no loss of tax to HMRC.  It just seems to be shortcuting the usual paper trail.

Please can someone tell me what I am missing?

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By Moonbeam
18th Jul 2012 22:28

This is a problem area

Someone posted a situation similar to this on Aweb about a year ago. His client had claimed back VAT from paying hotel invoices for subbies. HMRC at a VAT inspection stated they were not his employees, so this was actually entertainment. He therefore could not claim back the VAT and presumably the whole invoice would be disallowable for tax. So that's one problem in that he had overclaimed VAT and another problem in that his corp tax would be higher.

Subcontractors paying for their own accommodation might not be registered for VAT in the first place so couldn't claim back the VAT and if they invoiced on the expense to your client no VAT would therefore be claimable by the client. However the whole bill would then be allowable for your client for tax purposes.

It seems to me this is a very dangerous area, as if someone is truly at arms length from the company, why is the company paying for their accommodation? Could HMRC say that really the subcontractors are employees and the company now owes ERs NI on what it's paid them to date as they should all have been on the payroll? If there's enough Ers NI at stake HMRC can say what they like - it's expensive to have to prove them wrong.

Steve Kesby and many others will be much more in tune with the rules and regulations but this is going to be a serious issue for all of us to keep an eye on.

 

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By lesley.barnes
19th Jul 2012 14:40

I have had this situation

I won a dispute with a VAT inspector were the contractor made block bookings for subbies at hotels and paid the invoice. He was allowed to claim back the VAT on the hotel and the expenses. It wasn't a huge amount and he did it because he needed specialists who were based at the other side of the UK rather than local subbies. The rule I quoted was this one

http://www.hmrc.gov.uk/manuals/vitmanual/VIT13400.htm

Interestingly enough I had also emailed the VAT helpline before the contractor did it and was given the ok to do it so that was also used as evidence. I've also had freelancers in the entertainment industry were the production company has paid for and claimed back the VAT on travel, hotel and expenses. These were ok when the production company had a VAT inspection.

 

 

 

 

 

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Replying to Smad890:
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By accountsdragon
19th Jul 2012 14:53

Lesley, thank you so much. 

Lesley, thank you so much.  My thoughts were in the same direction as Moonbeam, that it just does not feel right, and there would be the employee/employer type converstaions. I had trawled AWeb and HMRC but obviously not looked in the right place.  Now to go back to client with an 'oh alright, I guess it's OK after all'. 

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By Moonbeam
19th Jul 2012 16:03

Very Interesting..

Hats off to Lesley. I suppose the point is to quote the appropriate reference material.

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By Steve Kesby
20th Jul 2012 10:48

Thanks for the mention

Just a quick thnks to Moonbeam for the mention. Apologies for not chipping in sooner, I was away yesterday.

If it weren't for Lesley's reference I think I'd also have agreed with Moonbeam on the VAT side of things.

On the employment issue, the fact that there are a limited number of jobs of a short duration isn't conclusive of the assignments being self-employed, because each assignment could be argued to be a separate engagement.

But if they would otherwise be regarded as self-employed, I don't think the provision of accommodation will alter the analysis greatly.

The best arguments will still come from the degree of skill that the contractors bring, the extent that they use tools of their own, and what happens if "rain stops play" or similar (see Castle Construction). Not to mention whether there is an effective right to provide an equivalently skilled substitute.

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By Moonbeam
20th Jul 2012 11:23

Impossible situation for us

Well, it's impossible for everyone except Lesley who is clearly very talented and experienced in this area. I'm quite jealous.

I am fast coming to the opinion that I need to download HMRC's guides and mug them up on a nightly basis. HMRC staff clearly feel no compunction to do this themselves. And there is a further problem in that many other seasoned practitioners take the view that HMRC's attitudes re IR35 etc can be challenged.

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Replying to drakeltd:
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By accountsdragon
20th Jul 2012 11:50

Thank you all.  I do love

Thank you all.  I do love AWeb, and the way that people with specific expertise are so willing to share.

Moonbeam, as far as IR35 is concerned, I am more jittery than may clients. Subcontractors talk amongst themselves and seem to feel that it is a fuss about nothing.  Still, as long as we point out the issues, we don't run their business for them.

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