Potential costs if HMRC challenge travel expenses

What are likely costs and penalties if HMRC disallow travel expenses claimed in a Limited Company

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Limited Company Client where the Director is claiming a significant amount of travel expenses which in my view are personal rather than business travel expenses; I don't think the primary purpose of the trips was business. I have pointed out that if investigated HMRC are likely to disallow the expenses but not quite sure of all the financial implications if HMRC did this. Firstly I assume HMRC would disallow them in the company tax computation .. would there be fines and penalties on the Company. Secondly I would think if HMRC didn't agree the expenses then they would deem the costs as personal drawings and tax them accordingly; what would the potential penalties be in such a situation?

Just trying to get my head round all the potential risks and costs involved here to try to persuade the client not to be unrealistic with his travel claims.

Replies (7)

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By SteveHa
28th Apr 2017 13:01

If your client has claimed personal travel expenses as business then HMRC are likely to treat as deliberate. Minimum 15% penalty. If he's tried to hide it, deliberate and concealed. Possibly 100% penalty.

Plus interest from original due date for payment and put under increased scrutiny in the future.

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By Ruddles
28th Apr 2017 13:07

Disallowing the expenditure would be one option but not, I believe, the correct one. Were the expenses returned on P11Ds and if not, why not? The question is then whether the director has made spurious claims for business travel expenses.

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By Matrix
28th Apr 2017 16:33

If the expenses are not business expenses then they should be payrolled or booked as a debit to his Director loan account. You need to be tough and explain this, you should not prepare accounts which you know to be incorrect.

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By Marion Hayes
28th Apr 2017 21:23

If the Company has a set criteria, which the expense claims comply with, the payments are part of the remuneration package so are not disallowable for the Company.
Whether the travel complies with HMRC definitions is another issue which impacts upon the personal tax return.
If they do not comply with the Companies criteria then I agree with Matrix to a degree. They cannot be payrolled as payment of a private expense, but they can go to DLA.
P11d's should be submitted and a corresponding expenses claim made and then see what HMRC responds by

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By ruth.julian
28th Apr 2017 21:47

If the company is VAT registered and theVAT has been claimed on expenses that are found not to be allowable, then is that another set of penalties and interest?

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By pauljohnston
03rd May 2017 10:20

This is getting close to a money laundering report. I suggest you have a discussion with the client and if he/she insists they are business you should put your concerns in writing.

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By tonyaustin
03rd May 2017 18:13

Assuming the director has control of the company or at least the authority to draw what sums he likes from the company, if the payments are charged to P&L account, HMRC would not normally disallow the expense. They will accept it as remuneration. This makes the payments the income of the director, which is taxable if not an allowable expense of employment. There is considerable guidance on what constitutes an allowable travel expense in the HMRC Employment Income Manual. If the income is taxable as personal travel and was reimbursed then PAYE should have been deducted. There will be a liability for income tax and NI, including employer's NIC. If paid directly by the company, it should have been included on P11D and subject to income tax and Class 1 and 1A NIC. Interest will be added and HMRC will charge a penalty if appropriate, depending on what advice was taken and what disclosure was made to HMRC

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