I have a client who is an international sales agent. He is frequently asked to incur expenses (travel costs etc.) on behalf of visiting representatives of his clients, which he then invoices back to that client at cost. As the result of an ongoing enquiry the Inspector is seeking to disallow some of these costs while keeping the related recovery as taxable income.
Whilst clearly iniquitous I would like some advice as to how to easily rebut his arguments.
Gerry Sims
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Entertaining is the bugbear
The Revenue twigged many years ago that recharged expenses could cover disallowable expenditure, and collected many millions of pounds as a consequence from the advertising industry, whoes lavish entertainment was recharged to their clients.
The problem is different , however, if the entertaining is conducted by the overseas principals, who are conducting a trade not IN, but WITH the UK.
The inspector may be right, you need to aanalyse the facts carefully.
Iniquitous Costs
Well, you just tell him he cannot have jam on both sides!
If you go along with allowing him to disallow them, ask him to give a reason. Would he have allowed them, if your client had recharged them at a premium?
One reason that I can think of is that your client has not incurred any expense at all because he has recharged them at cost. Therefore, I would argue that they are disbursements and directly offset against your Sales income. You end up with the same net result essentially, but maybe you have come up against a "jobsworth award" type of Inspector.