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High income clients, high value expense?

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I have a client who has recently started earning a lot of money. He is a sole employee / sole director of his ltd company. And the business is now earning upwards of £100K per month in the entertainment industry / public eye.

He requires a travel bag to trasport various equipment with him inside and outside of the country. In the past (when he wasnt making much profit) he has purchased a cheap rucksack/travel bag and i have allowed the expense and claimed back the VAT. No problem.

He has now purchased new bags. 1 x designer ruckack and 1 x designer travel bag. Costing around £5000+VAT. He beleives i should include the full expense through the business as it is business related. And also claim back the VAT. Im aware of duality of purpose rules but have never dealt with these circumstances before. I am wary to claim anything i shouldnt and cant seem to find anything clear on HMRC's website.

 

Secondly, he is now generating income from various photoshoots. In the past i havent allowed any clothing costs as he didnt require them wholly for his trade as an entertainer. However now he is generating income from this and being expected to dress a certain way. Would part /all of the clothing purchases related to the photoshoot be an allowable expense now he is generating income from that field? I have seen case studies where models have been allowed say 40% of their personal clothes purchases through the business. (60% disallowed through CT).

 

Any advice on either topic would be greatly appreciated. Thanks in advance

Replies (16)

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Scalloway Castle
By scalloway
10th Sep 2020 12:57

I would say that he can claim the rucksack and bag if they are used exclusevly for business travel.

The cost of clothes is normally only claimable if they are protective gear and preferably badged with a business logo.

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Replying to scalloway:
Red Leader
By Red Leader
10th Sep 2020 13:33

Clothes are more easily claimable if they are used whilst front of camera.

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Replying to Red Leader:
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By lewisdolman1996
10th Sep 2020 13:40

Thank you for your response. Not suggesting that i will claim a % of all of his clothes. But say i claimed for 50% of the clothes he specifically purchased for a photo shoot (in front of a camera). And disallowed the other 50%. Im thinking that this would be ok but as i say. It's a grey area i haven't touched on before.

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Replying to lewisdolman1996:
By ireallyshouldknowthisbut
10th Sep 2020 14:26

@nonlong anon, 'clothing vs costume' is not a partially grey area. There is a considerable l amount of case law and guidance on just this type of scenario as it often ends up in tribunal due to the egos involved and it seemingly being an area in which many stumble around. I have a client who is "on camera" but claim no clothing. why? None of it is 'costume' and business use is just a few shoot days a year. We do claim hair and makeup and her boots. Boots are her trademark and only used for shoots, albeit a lot are now gifted to her. Had boots not been relevant to her persona, I would not claim them. In fact we didn't do so before this became 'a thing' (which was accidental) as I would class it as clothing.

Im unsure of the basis for you 50/50 out of the air other than as you say "its an area you haven't touched on before".

As ever a return to the professional basics 'day one, page one, chapter one' is advised:

1. Does your experience and competence allow you to service this client independently?
2. If not, can you do so with help from your professional body/usual tax helpline/seconded advice?

If no to both of the above then no doubt your professional body will say you must disengage.

There is no disrespect in disengaging. I do it regularly when out of my depth or its and area I have no interested in developing professionally.

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Replying to ireallyshouldknowthisbut:
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By lewisdolman1996
10th Sep 2020 14:29

Thank you for your detailed response. To be honest my initial thinking was that no clothing is allowed. As it would never be wholly for work use. I had just read a few examples of models claiming part of their clothing costs. The 50/50 was just plucked out of thin air when considering only the clothes purchased for the shoot. I will definitely approach my professional body for clarification before i do anything.

My main concern / lack of understanding/experience was with the bag purchases.
I didn't know if there was a reasonable purchase figure when it came to allowable expenses? Or whether or not the fact it was expensive had anything to do with it. If it is solely for business use then is there an issue?

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Replying to lewisdolman1996:
By ireallyshouldknowthisbut
10th Sep 2020 15:34

Re the bag, well go back to the underlying legislation. What does it say?

I don't see anything in there about value myself.

On clothing, you cant claim clothing in general but you can claim costume. There is a significant difference.

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Replying to lewisdolman1996:
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By WhichTyler
10th Sep 2020 21:03

Quote:

I had just read a few examples of models claiming part of their clothing costs.

I thought the point of being a model was to wear other peoples' clothes...

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By Paul Crowley
10th Sep 2020 13:26

Why do rich people think that the business should pay for lifestyle choices.

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Replying to Paul Crowley:
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By lewisdolman1996
10th Sep 2020 13:52

Paul, I think this is more of a work bag than a lifestyle choice.

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Replying to lewisdolman1996:
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By paul.benny
10th Sep 2020 16:59

The quantum of spend on "work bags" suggests lifestyle choice.

Expensive/valuable equipment (musical instruments, cameras) might justify costly carrying cases for protection. Not designer luggage.

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By whitevanman
10th Sep 2020 19:17

Why do we keep getting questions (and answers!) that confuse the position of a company with that of an individual. The company is a separate legal entity, for those who seemingly don't know or forget, so it is the company's purposes that need to be considered, not those of the director. The answer will very often be that the cost is allowable but there may be a BIK to consider. And please stop talking about 50/50 (or any other) split, which is wholly wrong!
I am assuming for the moment that the photoshoot income is also part of the company's activities. If not you get the chance to use the different rules for that bit!

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By lewisdolman1996
11th Sep 2020 09:42

The business does require sturdy luggage to transport musical equipment around and outside of the country. I understand designer brands may not be necessary but if it is used wholly for the operations of the company, then i believe it is allowable?

Regards the clothing. the 50/50 statement was plucked out of thin air when responding to someone who claimed for clothes 'in front of camera'. I would never go ahead and do this without understanding hard facts. For record I have told the client 100% no to claiming any form of 'clothing'.

Thank you for all the comments on this post. People using their own experiences to advise me is great and really helpful. It's a shame my competence has been questioned as soon as my year of birth was revealed but i guess that is just what comes with the profession i am in, at my age. I have acted on behalf of this client for the past 6 years, from a small tax return to where we are now. Always have and always will keep my professional integrity and understand if/when i need to disengage.
Thank you all once more.

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Replying to lewisdolman1996:
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By whitevanman
11th Sep 2020 10:34

Your comments lead me to believe that you may not fully understand my previous post.
Simply stated, there is a big difference between the taxation of a sole trader and that of a company and it's directors.
Only one person has commented about disengaging and I doubt that post was anything but genuine and sound advice based not on age but on apparent knowledge. You mention age but I cannot see where anyone may have discovered your age from this thread unless you were born in 1996. If that is correct, you appear to have acted for this client since you were 18 and I doubt you were then qualified. Whether you are now qualified we have no knowledge.
All I will say is that there are some fairly basic but important issues raised by your post and if you are struggling with them, you may do better to disengage, not least for your own sake. The client is clearly moving up and with income of £1m plus, there are many issues, not just tax, that may arise. You may not be qualified to deal with them and getting it wrong could be very expensive. Even very experienced practitioners need specialist advice or need to hand on a client from time to time. As Atlea says, there is no shame in that. If anything, the problem is not recognising when you may need to do so. Relying on technical advice from an internet forum really is not a substitute.

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Replying to whitevanman:
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By lewisdolman1996
11th Sep 2020 11:51

I very much understand the difference between personal, company and dividend taxes etc. And also the difference between the entity of the company and its directors. My previous comment was in reply / thanks to everyone who had commented, not just yourself. My apologies if you got confused.

Not that it matters but yes i was 18 when starting to deal with this clients small tax return. Albeit overlooked by a senior. And yes, i am now qualified.
I really don't see what i have misunderstood? Nor do i see that i was asking for concrete technical advise on a forum. More seeing if other professionals had similar experiences. Isn't that the point of this ?

The companies turnover really has nothing to with whether or not an expense is allowable. Nor does it have anything to do with my competence or ability to deal with this type of business. I understand the clothing comments have ruffled a few feathers but I knew before this post that clothing wasn't allowed, as i have never allowed it previously. I was seeing other peoples experience on similar circumstances, where photo shoot income was concerned.

However, I may have got the purpose of this 'internet forum' confused. So I will refrain from asking anything on here in future. Thanks again.

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Replying to lewisdolman1996:
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By Rweaver
11th Sep 2020 11:43

When you say you’re “fully qualified”... what does that mean?

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Replying to lewisdolman1996:
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By whitevanman
11th Sep 2020 12:22

You say that you very much understand the difference etc but clearly that is not the case.
Let me try again.
When considering the taxable profits of a business, the main exclusion, for tax, is that expenditure must be incurred wholly and exclusively for the purposes of the trade etc.
Wholly refers to the amount and exclusively refers to the purpose. Generally speaking, you cannot have an apportionment unless you can identify a specific part of an expense that satisfies these conditions. So, you cannot have a bit of a shirt that is used wholly and exclusively for trade and the whole cost is disallowed FOR A SOLE TRADER.
A car, for example, is different. It can be used partly for business and is at that time used exclusively so. At other times it is used exclusively for private purposes. So, apportionment is possible FOR A SOLE TRADER.
In the case of a company, it can choose to spend its money in any way it sees fit. If it chooses to provide a director with a new suitcase, the question you ask is "why"?
Almost invariably the answer would be a business reason. Even massaging the ego of the director is likely to meet that definition. So the cost is wholly allowable for CT purposes. But, you then need to consider whether some charge will arise to the director and for example, the case might be put at the disposal of the director and be available for private use. So a benefit charge applies, with all that entails. The same is true of a suit or clothing.
The question then is whether in providing such, the taxation position of company and director might be worse than if the director bought his own.
If the director bought something which was used for business, (s)he might be able to claim relief but the test is much more stringent than that outlined above. The expense has to be necessarily incurred, wholly and exclusively in the performance of the duties of the employment. If you cannot get past that test there is no relief (absent any specific provision allowing relief, and there are very few such).
There are a number of other considerations but the above covers the main direct tax issues. There are also similar issues for VAT.
As to my comments about the size of the business, you again appear not to understand. Someone earning £50k will present certain issues. Someone who is a "celebrity" earning over £1m pa will present very different issues. Get it wrong for the first client and the cost might be a few pounds. Get it wrong for the latter and the cost could be a whole lot more. You need to satisfy yourself that you are competent to deal with the, more complex, affairs of the wealthier client. I would respectfully suggest that if something as basic as the matters in your OP gives you a problem, you might need to re-assess your position in as dispassionate way as possible. At least you may need to buy-in specialist advice.

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