Share this content
20

Subsistence Claim for multiple people

I work as an IT Contractor via Ltd Company and have incurred expenses on behalf of others

Didn't find your answer?

During 2018, I was engaged via my Ltd Co. to provide IT services to a client.  Included in the contract was the ability to recharge expenses back to the client.

I delivered my services along with other IT Contractors, also operating via a Ltd Co, with the same expense recharge policy available in their contracts.

On a fairly regular basis (couple of times a month), as part of delivering the IT project, we had to work extended hours into the early hours of the morning.  In these periods, we would often send out for a takeaway or break and go collectively for an evening meal.   The project manager would often ask one of us working on the project to pay for all evening meal costs (e.g. 4x individuals) using our credit card, and then this cost was added to our invoice and we were reinbursed by the end client.

In my accounts, this would clearly show as income arising from the client, with an equal amount being claimed by me as an expense.  E.g. I recharged £100 to the client for subsistence, and this from an accounting point of view would sit on my income/revenue.  It would, however, be cancelled out by the claim by me of a similar £100 for evening meals, which would sit on the expenses side of my accounts.  Therefore, it was seen as cost neutral.

Fast forward to my accountants presenting me with a draft copy of my CT600 and I noticed that they have not allowed these meal expenses, as they have categorised them as entertainment, and therefore not allowed against corporation tax.

This has clearly come as a nasty surprise to me, as now that same £100 income, is now subject to 19% charge of corporation tax.  In essence, for every £100 it is now personally costing me £19 - when in fact, I had understood that it will be cost neutral to my company.

Can someone advise, if this is in fact correct?  I appreciate the tax system doesn't always operate on the basis of fairness, but my view is that had I only paid for and claimed for myself, and the other contractors done the same each time, then this expense would have been allowable for each of us against our respective Ltd. Companies.  HMRC are not losing out of revenue, and we are not claiming for anything which any reasonable person would expect.  The whole arrangement for one of us paying for and producing a single claim instead of 4 individual claims to the client company was done for ease and convenience when settling the bill, not in anyway, some convoluted way to defraud HMRC of tax revenues.

Thanks in anticipation of any help or guidance.

The IT Contractor 

 

 

Replies (20)

Please login or register to join the discussion.

By johngroganjga
04th Apr 2020 16:10

What does your accountant say when you tell them why you think the items in question are not properly treated as entertaining?

Thanks (0)
Replying to johngroganjga:
avatar
By IT.Contractor
04th Apr 2020 16:20

I have tried calling and emailing the accounting company involved but they are not responding promptly to requests due to Covid-19. All their accountants are working from home.

Whilst this shouldn't really impact on the their ability to respond, it is. I can only assume that they are being swamped with enquiries about the CV19 Job retention schemes, and other government business assistance.

Hence, why I have posted on here for guidance as this is causing me to worry and become anxious.

Thanks (0)
Replying to IT.Contractor:
avatar
By Accountant A
15th Jun 2020 20:30

r p

Thanks (0)
Replying to Accountant A:
avatar
By IT.Contractor
04th Apr 2020 18:43

Hmmm

Perhaps you should consider your response & it’s impact. You’re only seeing a slim view of my overall circumstances.

I admit that I am grateful for the circumstances I find myself in, compared to those of some others.

However, let me share my overall picture.

I have just finished my contract. With IR35 & CV-19, the contract market has been obliterated so I do not know when I will be in work again. The potential contracts I was negotiating have both been put on hold due budget cuts.

Permanent positions are also becoming rare as hens teeth. As Ltd Co. Director I do not qualify for self employed assistance. I can qualify for 80% of my salary based on 80% of £719 per month.

I have two tenanted properties both of which the tenants have stopped paying rent since CV19. I am now having to cover the costs out of my own pocket.

I am due to pay balancing payment on a flat which I bought off plan 3 years ago. I don’t know where I’m going to find the money to make the balance payment of £85K. Not likely to get a BTL mortgage as no income.

Finally, my accountant has identified a4K overpayment of expenses which I either have to repay from own funds or add to Directors Loan.

Yes, I’m luckier than some but still facing a financial mess because of circumstances beyond my control.

So apologies but your comment was neither helpful or encouraging

Thanks (0)
My photo
By Matrix
04th Apr 2020 16:27

I agree it is entertaining. Since there is also no VAT reclaim, I would like to think I would have picked this up fairly quickly from my client’s records the first month or quarter, so they could either not do this or recharge a higher amount.

Thanks (1)
Replying to Matrix:
avatar
By IT.Contractor
04th Apr 2020 16:34

Thank you Matrix.

Sounds like its a case of a lesson learned the hard way then!

I won't be making that mistake again - even if it sounds by my contractor colleagues that I'm being unreasonable or difficult by making us all pay our own amounts.

As a follow up question, do you think I would still be able to claim my part of the bill as an expense?

Thanks (0)
RLI
By lionofludesch
05th Apr 2020 07:38

It's not entertaining. Entertaining would suggest that the expenditure is gratuitous. This isn't. You pay it out, you get the money back. No more entertaining than a pub landlord buying a barrel of beer and selling it on. The fact that you made no profit is irrelevant.

Thanks (1)
Replying to lionofludesch:
avatar
By whitevanman
05th Apr 2020 11:51

How does it differ to the employee who pays for a meal with customers and is then reimbursed by his employer?
The customers get a free meal. They don't care how the employer is paid or whether the employee is reimbursed.

Thanks (0)
Replying to whitevanman:
RLI
By lionofludesch
05th Apr 2020 12:05

Dunno, how does it ?

The point is that the OP hasn't entertained anyone at his cost.

Thanks (1)
Replying to lionofludesch:
My photo
By Matrix
05th Apr 2020 12:28

So do you think it is a disbursement?

Thanks (0)
Replying to Matrix:
RLI
By lionofludesch
05th Apr 2020 12:41

"In my accounts, this would clearly show as income arising from the client, with an equal amount being claimed by me as an expense. E.g. I recharged £100 to the client for subsistence, and this from an accounting point of view would sit on my income/revenue. It would, however, be cancelled out by the claim by me of a similar £100 for evening meals, which would sit on the expenses side of my accounts. Therefore, it was seen as cost neutral."

Yes.

Even if it isn't, he's buying meals to sell on, albeit at cost.

Not entertaining for me.

Thanks (1)
Replying to lionofludesch:
By Duggimon
06th Apr 2020 09:20

I agree, if he spends £100 on a meal for four it's £25 income & subsistence and £75 neutral disbursement, no entertaining, no additional tax.

Thanks (1)
Replying to Duggimon:
avatar
By whitevanman
06th Apr 2020 12:00

Whilst many might agree the sentiment, I am not sure that's how it actually works.
Hospitality, per decided cases, is decided as between the person providing it and the person receiving it. If one of the 4 pays for the meals, the others have received a free meal at the expense of the payer. It does not matter that there is some later reimbursement by a third party ( see the BMW case).
If the director making payment then reclaims from his company, even though his company is reimbursed, the result will be that his co receives £100 that is taxable and pays (at least) £75 on entertaining. Not sure how you can just ignore the facts even though the result is not what you (and i) might consider "correct" (desirable) but I am willing to be convinced otherwise.

Thanks (1)
Replying to whitevanman:
By Duggimon
06th Apr 2020 15:32

In the description given, the request was made by the "project manager". My interpretation hinges on that being someone who is or represents the end client.

The expense for the other contractors' meals is not that of the OP's company, it is an expense of the other contractors' companies and reimbursed by their mutual client, the payment is only made by OP's company at the request of the client to simplify the transaction and can be treated as a disbursement.

If this is an agreement by the contractors themselves and nothing to do with the client, then I would probably have to agree it's entertaining.

Thanks (1)
Replying to Duggimon:
avatar
By whitevanman
06th Apr 2020 15:58

I don't really understand your point about disbursement.
The £100 is added to the invoice between end client and provider co (say co A). It will appear as income in co A.
The director of co A has paid away £100, either from his / her own pocket or by company card etc. Either way it is then presented as an expense in co A.
The problem is the tax rules, which, as stated in my last, would seem to then treat at least £75 as being disallowable entertaining.
The problem arises because the tax system does not fit with modern ways of working but unless they change it, I would advise the client to stay clear of such arrangements ( or avoid being the one to pay!).

Thanks (0)
Replying to whitevanman:
My photo
By Matrix
06th Apr 2020 18:18

Doesn’t it depend on how IT contractor invoiced his client? If it is a disbursement as Lion suggests then it should have been invoiced as such and the VAT receipt provided.

Thanks (0)
Replying to Matrix:
RLI
By lionofludesch
06th Apr 2020 18:22

Matrix wrote:

Doesn’t it depend on how IT contractor invoiced his client? If it is a disbursement as Lion suggests then it should have been invoiced as such and the VAT receipt provided.

Clear cut for me.

He bought some meals and he was paid for them.

April Fool's Day was last week.

Thanks (0)
Replying to Duggimon:
avatar
By IT.Contractor
06th Apr 2020 19:59

Hi Duggimon,

So to address your point.

The project manager (employee of the end client), was the person that made the request for me to pay for all the meals of those present at the dinner. He asked if I would mind, which I didn't, and he said just put the claim through on your expenses and I will authorise it for you.

The people at the dinner consisted of the end client employee (Project Manager), myself and two other contractors (also operating via Ltd Co.).

At the end of the month, I invoiced as following:

X days professional services @ Y rate per day

Expense Recharges
Hotels £XXX's
Subsistence £XXX

The X days professional services and expense recharges where then added together, and the VAT applied @ 20%.

My understanding around treatment of disbursements is that this is normally something which is purchased on behalf of the client and which the client has direct benefit from. E.g. I might purchase a software license as part of a project for the client. My end client's company will have the benefit of the software license, not my company. Therefore this would be treated as a disbursement, and VAT would not be added to that part of the invoice.

I must admit, I hadn't really considered the cost of the meal for the project manager as a disbursement - but I guess it could arguably be treated as such??

So that just leaves the problem of recovering the cost incurred by my company for the other two contractor's meals.

As I understand it, for every £100 I spend out on meals for the other team members, I stand to lose out to the tune of £19 (Corp tax rate), as the £100 that is reimbursed by the client, sits in the accounts as income to the company, and because the expense of the £100 is not being allowed.

To address other questions raised. Yes, I paid the bill using my personal credit card and then put in an expense claim to my own Ltd. Co.

I also had a directors loan which exceeded £10K, so the accounting company have moved the overpayment of expense reimbursements to my Directors Loan Account, which means that I will be liable for s455 charges and interest as well.

Ideally, the accounting company would have picked up the large subsistence claims (as well as read the expense entry description which stated it was a for 4 people's evening meals). However, it wasn't picked up until they started to prepare the end of year accounts.

Thank you everyone for your contributions so far.

What I have felt some comfort from is that there is clear disagreement between all of you, as accounting experts. Therefore, this is one of those matters whereby there seems to be no consensus of opinion - ergo, what hope / chance did I stand :-)

Thanks (0)
Replying to IT.Contractor:
RLI
By lionofludesch
06th Apr 2020 20:23

IT.Contractor wrote:

I also had a directors loan which exceeded £10K, so the accounting company have moved the overpayment of expense reimbursements to my Directors Loan Account, which means that I will be liable for s455 charges and interest as well.

I should perhaps point out that s455 charges start when you owe the company £1, not £10000. The £10000 threshold is something else.

Thanks (0)
Replying to IT.Contractor:
My photo
By Matrix
06th Apr 2020 20:31

Assuming 9 months have not yet passed or you would be late with the accounts, you can declare a dividend to repay the loan and avoid the s455 charge.

Thanks (0)
Share this content

Related posts