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Client Travel expenses

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I have a client who is IT contactor with his own Limited company

He orginally went to India on business to meet clients and setup a indian business that is partly related to the work the UK business does.  In India in August 2020 but has stayed there due to the Pandemic and some personal issues.  He is orginally from India,

He has continued to work for his sole UK client from India but he is insisting to include his car rental and six months accommodation costs in his UK company which amount to be £10,000.  Surely these are personal expenses and nothing directly related to his UK business ?

 

 

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By David Ex
22nd Sep 2021 17:51

sanjay100 wrote:

… due to … some personal issues. 

Surely these are personal expenses and nothing directly related to his UK business ?

At best, you have duality of purpose which is probably sufficient to disallow much of the expense. Maybe some allowable costs in there if they intention was to generate business for the UK company.

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By Matrix
22nd Sep 2021 18:57

Are the company’s profits taxable in the UK or just in India under the DTT? I mean, does it matter?

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Replying to Matrix:
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By sanjay100
23rd Sep 2021 13:04

Profits just taxable in UK though arguably the company is being managed from India and probably may have some tax exposure in India under DTT

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By Matrix
23rd Sep 2021 13:35

I would expect there to be tax exposure under domestic law. He should check with an Indian tax adviser and I suggest you discuss too. These are fundamental issues which should be addressed first. Also look at where he was resident so you can address the personal tax implications of these benefits.

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Replying to Matrix:
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By Rgab1947
27th Sep 2021 09:49

Company profits taxed in UK but India applies Withholding tax for professional services of up to 10% of invoiced amount. However if managed from a permanent establishment in India, India tax returns required with P&L for that component applicable to India.

The DTA will ensure no double tax except for the unused WHT as that is not deductible (I believe - do tell me I am wrong as client is taking a big hit on 10% on turnover whilst only 19% on net profit)

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By Hugo Fair
22nd Sep 2021 20:11

Start/End of his company's tax year that includes Aug 2020?
Whilst he continues "to work for his sole UK client from India", is it the UK company that is invoicing for the work?
Were "his car rental and accommodation costs" previously paid by his UK company?
If so, on what basis? And what is different now?
Does he intend to return to the UK (i.e. temporarily stranded) - or has he decided to leave for good?

Come on Sanjay, you know these (and many other questions) need to be understood before attempting to answer your question ... or have I misread what you're asking?

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Replying to Hugo Fair:
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By sanjay100
23rd Sep 2021 13:22

Sorry Hugo you are right laziness on my part and expected everyone to read between the lines.

The car rental and accommodation costs were incurred in India (through the Director personal credit card) but went to India about setting up a another business. The intention is for the UK company to lend funds to this Indian business that he wishes to setup. The business in India is selling IT equipment while in the same domain but different type of activities. Though I noticed that the Indian business has not been setup and seems he had some business meetings and done some research then got stranded in India due to Pandemic and personal reasons . He intends to return to the UK next month.

He continued working in India for his UK client under the UK Limited company.

The main question can the UK business obtain tax relief for the Indian travel expenses. He intends to charge the company around 10-12K in expenses which I have disagreed with.

Car Rental costs are 6k for the six month period alone. That seems very steep indeed especially in India. Anyway I do not think he met more than a few people so most of the expense is personal. Otherwise I think most directors could just work from another country and claim accommodation and other expenses

I would assume tax relief could be offset Indian business not the UK company.

Year end is 31st March

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Replying to sanjay100:
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By Hugo Fair
23rd Sep 2021 15:37

Ah, thanks for the clarifications ... and to TD for reading between the lines (below) more accurately than me!

As you say (or at least hint) I can't see how any of the purposes of his initial trip to India related to his UK business (especially if he was exploring the option to set up a separate business - which hasn't happened). Although I suppose if he had been thinking of setting up an Indian branch of UK business that *might* be different?

I'm less clear on the remaining accommodation & other expenses - but only if they were enforced (are we sure that applies to whole period) by Coronavirus travel restrictions rather than personal choice. If by choice then I feel they are also not related to the UK business, but covid impact introduces an unknown factor ...

Finally there's your comment regarding "Car Rental costs .. seems very steep indeed especially in India. Anyway I do not think he met more than a few people so most of the expense is personal." These appear to be easier to verify in the usual way (receipts, explanations, etc) - or not (depending on client)!

It certainly sounds like it's time for one of those chats where you explain to him the difference between various entities (individual taxpayer, UK Ltd company, putative Indian company) ... before you tackle covid or tax treaties or residence!

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By Tax Dragon
23rd Sep 2021 07:32

I have seen questions asked more clearly, I have to say.

I think (@Hugo) that the expenses in question have been incurred in India and relate to the stay there; they're not UK expenses that have previously been paid and continue during Sanjay's client's absence. Though there is undoubtedly much ambiguity in Sanjay's presentation of the facts, as well as his leaving you (well, me) wondering "so what's the question?"

If the question is: "can the company pay these costs?" the answer is, "why not?" AFAIK, companies can pay for whatever they want, subject to legal restrictions (e.g. - @Hugo again - our old favourite, ransom payments) or constitutional ones (in the Articles). (Others in here will know more about CA requirements eg responsibilities to stakeholders... but I struggle to believe this is Sanjay's question. I move on.)

If the question is whether the company can get tax relief for any such payments, "why not?" still stands up fairly well as an answer.

Matrix gives one possible reason why not in the instant case: the company might not have income liable to UK tax at the time the expense was incurred, and, if so, then the basis for setting the expense against any income that is within charge seems questionable. It's a good point, but let's assume for the purposes of this reply that the company remains within the UK tax net. (I move on.)

David suggests a dual purpose reason why not, but companies tend not to have personal motives and it's rare for payments to fall foul of this provision. HMRC does argue in the manuals that personal motives may be imputed to companies from shareholders. I don't recall coming across this applying in real life yet, but that's probably because most shareholders that can impose their personal motives onto companies are also directors. The payment by the company then often forms part of the director's remuneration package and is nearly always allowable for the company as part of that package.

Which brings us neatly to the question I think Sanjay should be thinking about, but patently hasn't asked: is there a tax charge on the director if the company pays the expenses? If you can answer that from the information provided (even if we can agree on what that is) then you are a better tax dragon than I. (Or is that "me"? Dammit I always forget this, despite repeated lessons from DJKL.)

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Replying to Tax Dragon:
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By sanjay100
23rd Sep 2021 13:13

You have summed it up very well. The question was on tax relief for expenses the director was about to charge the company for these Indian travel expenses. My issue is these expenses do not have much of a connection to the UK business.

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Replying to sanjay100:
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By Tax Dragon
23rd Sep 2021 13:45

So it's pretty much just a cash payment to a director? It doesn't sound like the company is, for example, making a car available - but your lines are too close together for me to fit my print between. (I like big print, though the devil is always in the little.)

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Replying to Tax Dragon:
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By sanjay100
23rd Sep 2021 15:22

Yes the UK company intends to make payment to the Director for car rental and his apartment. I think I got your joke on reading between the lines :-)

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Replying to sanjay100:
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By Tax Dragon
23rd Sep 2021 15:43

Wow, hardly anyone ever gets my jokes. I've come over all emotional.

Anyway, in big print... if it's a cash payment to a director (not being a reimbursement of a business expense or what have you)... PAYE? (But of course the company gets a deduction.)

Caveat: I'm assuming no IR35 or other (little print) complications.
Edit: don't ignore other potential issues that others have raised.

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By lesley.barnes
23rd Sep 2021 15:48

Could you break all this down and tell us what expenses actually relate to the UK business? What was his reason for going to India? How it it benefit his UK Company?

You said he went to India to set up a brand new Company in India? How does this relate to his UK business is it just that he plans to loan money from his UK company to his Indian company? What other connection is there - was he having business meetings to secure work for his UK business or his Indian business? Did he secure any work? You mention he didn't set up an Indian Company.

Covid aside you mentioned he had personal reasons for staying in India is this correct? I think that the fact that whilst he was in India he continued working for his client through a UK company remotely is a red herring working in India isn't necessary for this job.

Have a look at this. www.gov.uk/hmrc-internal-manuals/business-income-manual/bim37610

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Replying to lesley.barnes:
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By sanjay100
23rd Sep 2021 16:08

I do not think any of the expenses relate to the UK business. If anything it relates to his Indian business that was planning to setup. I can't see any benefit to the UK company as they are into consultancy and Indian company once its setup will be selling.

I can understand the justification if the director went to India and signed up clients that would be billed from the UK company but that doesn't seem to be the intention. Only benefit is the UK company will lend money to the Indian business and maybe charge interest to the Indian company.

From what I can make out he must only had a few meetings in India and hasn't made much progress. I even gave him a contact to setup a Indian company.

Due to some domestic issue with his wife - the courts had prevented him from leaving the country.

Thanks for the link that is most useful

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Replying to sanjay100:
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By Tax Dragon
23rd Sep 2021 16:46

sanjay100 wrote:

Due to some domestic issue with his wife - the courts had prevented him from leaving the country.

That's more like the Sanjay clients we know and love! Welcome back, dude!

sanjay100 wrote:

Thanks for the link that is most useful

Well... not if all that's happened is that the company has paid a director. What the director spent/spends the money on... who cares? (Caveat: I said if. I'm not 100% sure of the facts. Facts kind of need to be stated, not left in gaps between lines.)

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Replying to Tax Dragon:
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By sanjay100
23rd Sep 2021 19:28

Thanks for the backhanded compliment :-).

Well the director has not been paid yet. Perhaps the link is not so useful - the company paid for the expenses directly.

If he does get paid then it will have to go through the payroll or debited to the Director loan account.

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Replying to sanjay100:
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By Tax Dragon
23rd Sep 2021 19:59

Imho we're not on the same page. If the company paid the costs directly, much of what I said is surely irrelevant?

I better leave you with others that talk the same language as you. (But I'm still glad you got my joke - and 'compliment' :-).)

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Replying to Tax Dragon:
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By sanjay100
23rd Sep 2021 21:46

Unfortunately my fingers is faster than my brain.

Again I have not been clear what I meant in the link example the company paid for the expenses directly. In my case the director paid expenses personally.

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Replying to sanjay100:
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By Tax Dragon
23rd Sep 2021 22:03

Ah, that makes sense (could be Hugo and I read too fast?)

What I said is reinstated.

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Replying to sanjay100:
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By Hugo Fair
23rd Sep 2021 20:08

? You've done it again Sanjay - concluded with a summary that either raises more questions or shows that I'm not understanding what you say?

"the director has not been paid yet - the company paid for the expenses direct."
If the company (UK Limited company?) has paid the director's expenses direct, then those payments have been made on behalf of the director IF they were not incurred W+E for the purposes of the business ... and so are a taxable BiK.

The taxable nature is not dependent on "If he does get paid" (which presumably is not needed if the suppliers have already been paid by the company).

EDIT: just seen that this crosses with TD's response/query.

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Replying to Hugo Fair:
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By sanjay100
23rd Sep 2021 21:50

Sorry like I just mentioned with TD - the example in the link it seems the director had paid for the expenses through the company whereas in my case the director paid the expenses personally and expects the company to reimburse him

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Replying to sanjay100:
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By Hugo Fair
23rd Sep 2021 23:48

Fine, so we're now back to your post of 19:28 ... in which the 3rd para now indeed makes sense.

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Replying to Tax Dragon:
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By AdamMurphy
23rd Sep 2021 22:25

Tax Dragon wrote:

sanjay100 wrote:

Due to some domestic issue with his wife - the courts had prevented him from leaving the country.

That's more like the Sanjay clients we know and love! Welcome back, dude!

sanjay100 wrote:

Thanks for the link that is most useful

Well... not if all that's happened is that the company has paid a director. What the director spent/spends the money on... who cares? (Caveat: I said if. I'm not 100% sure of the facts. Facts kind of need to be stated, not left in gaps between lines.)

Who needs TV dramas when you've got Sanjay's clients to read about!

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Replying to sanjay100:
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By David Ex
23rd Sep 2021 22:54

sanjay100 wrote:

I do not think any of the expenses relate to the UK business. If anything it relates to his Indian business that was planning to setup. I can't see any benefit to the UK company as they are into consultancy and Indian company once its setup will be selling.

Had you stated in your original question that the “Indian business” was going to be conducted through a local company and not through the UK company, we could all have saved a lot of time.

The quality of responses is generally heavily dependent on the quality of the question.

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By tonyaustin
27th Sep 2021 12:25

The expenses are an allowable deduction from the company's profits as an expense of a director. The director now has expenses payments for travel, subsistence and accommodation, which may be a taxable benefit, if he is resident in the UK from August 2020 until his return. He may be able to stay in India long enough to become not UK resident in 2021/22 with a split year for 2020/21 and 2022/23. If not you will have to consider the rules about travel to a place of temporary or permanent employment. HMRC manuals are the place to look.

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