Subsistence expenses for one man band contractor companies

Subsistence expenses for one man band...

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Can one man band contractor companies take advantage of £10 per day subsistence without a dispensation providing they stay at a place of work less than 24 months ?
Do they have actually have to have a receipt for each day they want to claim the £10 -does it have to equate to £10 ? These benefits are offered by umbrella companies but it is not clear if contractor s can also do this .
Thanks

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Jessica Pillow
By Jessica Pillow
22nd Sep 2014 22:44

My tax helpline advice just today!

HI

Just asked my tax advice helpline the very same question today!

They advised that contractors can not claim subsistence at all if they are away from their home office habitually as this is normal state of play. They advised that subsistence can only be claimed if an employee is UNUSUALLY away from the office or away longer than usual.

Otherwise, they said that getting the meal falls into the need to be fed rather than an extra charge due to work.

Would also be interested in other people's views!

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Replying to johnhemming:
By JCresswellTax
23rd Sep 2014 09:21

When you say contractors...

pillowmay wrote:

HI

Just asked my tax advice helpline the very same question today!

They advised that contractors can not claim subsistence at all if they are away from their home office habitually as this is normal state of play. They advised that subsistence can only be claimed if an employee is UNUSUALLY away from the office or away longer than usual.

Otherwise, they said that getting the meal falls into the need to be fed rather than an extra charge due to work.

Would also be interested in other people's views!

I presume you are talking about self-employed CIS contractors rather than what the subject is actually about? i.e. one-person limited companies?

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By DAKINS
22nd Sep 2014 23:07

Thank you this is a surprise, since I have clients who have been advised by previous accountants that due to being a contractor they can claim subsistence of up to £10 per day for lunch and theses are big accounting firms specialising in one man band contractors . I think this needs more research ! Does anyone else out there have any experience with this? Thanks

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By cfield
23rd Sep 2014 00:55

There is no automatic entitlement

First of all, you need to understand the difference between the PAYE rules for one-man limited companies and the self-employed rules for sole trader contractors such as those on the CIS scheme.

To qualify for travel and subsistence (the two go together) an employee (i.e the director) must be attending a temporary workplace. The Booklet 490 rules come into play here and they are more complicated than most people (especially umbrella companes) think. There's a lot more to it than being somewhere less than 24 months.

Something that catches out a lot of contractors (or it would do if they were caught, which is very rare) is that consecutive assignments in the same area are treated as a single workplace, even though you may be working for different clients. Your journey to work must change significantly.

Also, if you work in the same location for all (or substantially all) the period of employment, it is not a temporary workplace. You must attend more than one workplace throughout the course of your employment (or at least genuinely expect to) in order to claim travel and subsistence. This is where many contractors fall foul of the rules, as they often leave one umbrella company and join another for their next contract. Therefore, the employment ends after one contract. It is better to work through your own personal service company, as then it is one continuous employment.

Next, we should debunk the myths surrounding HMRC dispensations. These do not mean you are allowed to claim certain expenses tax free. They merely mean your employer does not have to report them on a P11D, but only provided they really are tax free, which depends on both the employee and the contract. An employer does not actually need a dispensation to pay its staff subsistence. They do not affect your actual entitlement to expenses in any way.

Dispensations will be going out of the window soon anyway, as HMRC are moving over to a system of self-certification for reporting expenses on P11Ds. This is one of the recommendations of the OTS report on the tax treatment of expenses, and is a very sensible measure aimed at cutting the number of P11Ds with expenses by 98%.

Assuming you qualify for tax free subsistence, you have 2 ways of claiming it. You can either claim the actual amounts (as evidenced by receipts) or the benchmark scale rates. This is where the £10 per day comes from. In fact, you can only claim that if your working day (including time spent travelling) is 10 hours or more. Plus you must actually buy something to eat and drink. Packed lunches don't count.

You don't actually need to keep receipts if you claim the benchmark rates. However, HMRC often insist on this before granting dispensations, as employers are supposed to carry out random checks on a  regular basis to ensure compliance with the tax rules. Once the checks have been carried out for a particular period, there is no need to keep the receipts any longer.

One-person companies are entitled to use the benchmark rates the same as any other employer. Unfortunately, HMRC often require them to keep receipts and carry out checks too before granting a dispensation, which rather defeats the object of the scale rates.

Frankly, it's easier to do a P11D once a year than check there is a receipt for both food and drink on each day claimed. It's a bit of a lottery really, as some tax offices will grant dispensations immediately without any fuss whilst others ask loads of questions and insist on suitable control systems.

Turning now to the self-employed, there is no equivalent of the temporary workplace rules or the benchmark rates. Sole trader contractors can only claim subsistence if it is wholly and exclusively for the purpose of the trade. HMRC only allow the self-employed to claim subsistence where overnight accommodation is necessary, for occasional journeys outside the normal pattern or if a business is by its nature itinerant. It is a rare example of employees being able to claim more in expenses than the self-employed.

If you are a sole trader (or a member of a partnership) and your base of operations is away from home, you cannot claim travel expenses for going to that place of work or subsistence whilst you are there, even if it is less than 24 months. These rules were reinforced in the recent Dr Samadian case, but they have always existed. The tax advice line was basically right if you are a sole trader contractor.

As you can see, it's a lot more complex than most agencies or umbrella companies would have you think.

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By DAKINS
23rd Sep 2014 00:59

Thank you!
That was most useful !! It would appear that all contractors of one man companies just expect the £10 per day regardless!!!!

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Jessica Pillow
By Jessica Pillow
23rd Sep 2014 12:28

Agree with cfield's answer above

I went back to my tax advice line today and asked them again about travel and subsistence for a temporary workplace for one-person limited companies.  This time I was put through to a specialist who absolutely concurred with what cfield was saying in his answer above.  So I am taking this and booklet 490 as gospel too!

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Replying to Tim Vane:
By cfield
23rd Sep 2014 12:57

Glad to be of service

Always glad to help out contractors struggling with these arcane rules. If you know any others who need help, by all means steer them my way. You can ask them to PM me or PM me with their contact details.

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Replying to Vile Nortin Naipaan:
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By bluetone
26th Sep 2014 11:00

Recent change to dispensation

Question to "cfield" & anyone else who can help! I work for a limited company of several employees which has always had a dispensation. We've recently had it reviewed and whereas in the past we could pay meals & one alcoholic drink with a meal up to any value with a receipt, we have just received an updated dispensation where we can only reimburse receipted meals up to £9.50. So anyone who buys an evening meal on an overnight stay over £9.50 is to be taxed on the amount in full,  if they claim the expenses.

Is this a general trend in clamping down on expenses or does this seem particularly unreasonable to anyone?

I would say that generally in a hotel it would be difficult to find an evening meal with a drink for £9.50 these days. This would mean our employees would have to venture out to a local fast food restaurant or pub to find a meal at this price if they don't wish to be taxed. I certainly wouldn't want to be forced to do this on my own on a dark winters evening after along day at a client site!

Are other companies finding their dispensation cover getting smaller and smaller or should I appeal the alterations?

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Replying to lionofludesch:
By cfield
26th Sep 2014 12:53

Dispensations

The change in your employer's dispensation does not mean that you will definitely be taxed on any meals exceeding £9.50. It just means they would have to report them on a P11D once a year. Without any further action by you, you would then be taxed on them through your tax code. However, that is not the end of the story.

If you are on Self-Assessment (e.g if you earn over £50k and you or your partner claim Child Benefit) you simply claim the P11D expenses on your tax return as incurred "wholly, exclusively and necessarily in the course of your employment". That would only be the case, however, if you were at a temporary workplace (as defined in HMRC Booklet 490) or on a one-off business trip. If not, then any subsistence you claimed should be on your P11D anyway, whatever the cost, and it would not be tax deductible. See also my comments below about evening meals, as these may not be claimable.

If you are not on Self-Assessment (i.e. you do not have to file a tax return every year) you can claim back expenses on Form P87 which you can now complete online. It seems to be designed for people to claim expenses against tax that have not been reimbursed to them by their employer, rather than those that have but were reported on their P11D as taxable benefits. However, it should serve the same purpose if you treat them as not reimbursed.

In either case, your tax code may be adjusted for the P11D items in the meantime and you will have to wait for it to be adjusted back again.

I have not heard that HMRC are being any meaner or stricter on dispensations than they used to be. What they should do for larger employers is ask them (or allow them) to carry out a sampling exercise for a brief period so the actual level of meal expenses can be gauged. £9.50 may seem low but bear in mind it is only meant to cover lunch, beverages, etc. The one-meal benchmark rate (for 5-10 hours) is only £5, so £9.50 is actually quite generous if the dispensation allows this to be paid for normal working days.

If you need an evening meal too, this is only tax deductible if you work late (up to 8pm) on an occasional basis. If you work late regularly, you cannot claim extra for evening meals, even if you are at a temporary workplace. If you are on an overnight business trip, the dispensation should cover the actual cost of hotels and meals whatever the cost (provided it is reasonable) so the £9.50 limit should not be an issue. If the £9.50 is for overnight stays too, then your employer should ask HMRC to substitute "reasonable costs" instead for these claims, which is the usual wording for most dispensations.

The best bet for your employer may be to adopt the benchmark rates and ask for these to be included in their dispensation. Then, you can claim up to £15 for an occasional evening meal without it appearing on your P11D. Employees will have the choice of claiming either their actual expenses or the benchmark rates for day-to-day subsistence (such as lunch) but not both, not on the same day anyway. However, if employees can claim up to £9.50 for lunch under the terms of the dispensation, then it would be best to stick with this, at least for the lunch claims.

Alternatively, your employer could negotiate a higher rate just for employees working late, as £9.50 is clearly not enough for an evening meal as you say. They may be able to justify more than £15 for a decent pub dinner, as most of them aren't that cheap any more.

The benchmark rates should be in line for a rise as HMRC pledged to increase them once inflation went up more than 10%. I'm sure this must have happened by now, but I haven't heard any whispers on this front yet. Perhaps it's just slipped their minds!

 

 

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Replying to vtsoftware:
By JCresswellTax
26th Sep 2014 13:18

Wow

cfield wrote:

The change in your employer's dispensation does not mean that you will definitely be taxed on any meals exceeding £9.50. It just means they would have to report them on a P11D once a year. Without any further action by you, you would then be taxed on them through your tax code. However, that is not the end of the story.

If you are on Self-Assessment (e.g if you earn over £50k and you or your partner claim Child Benefit) you simply claim the P11D expenses on your tax return as incurred "wholly, exclusively and necessarily in the course of your employment". That would only be the case, however, if you were at a temporary workplace (as defined in HMRC Booklet 490) or on a one-off business trip. If not, then any subsistence you claimed should be on your P11D anyway, whatever the cost, and it would not be tax deductible. See also my comments below about evening meals, as these may not be claimable.

If you are not on Self-Assessment (i.e. you do not have to file a tax return every year) you can claim back expenses on Form P87 which you can now complete online. It seems to be designed for people to claim expenses against tax that have not been reimbursed to them by their employer, rather than those that have but were reported on their P11D as taxable benefits. However, it should serve the same purpose if you treat them as not reimbursed.

In either case, your tax code may be adjusted for the P11D items in the meantime and you will have to wait for it to be adjusted back again.

I have not heard that HMRC are being any meaner or stricter on dispensations than they used to be. What they should do for larger employers is ask them (or allow them) to carry out a sampling exercise for a brief period so the actual level of meal expenses can be gauged. £9.50 may seem low but bear in mind it is only meant to cover lunch, beverages, etc. The one-meal benchmark rate (for 5-10 hours) is only £5, so £9.50 is actually quite generous if the dispensation allows this to be paid for normal working days.

If you need an evening meal too, this is only tax deductible if you work late (up to 8pm) on an occasional basis. If you work late regularly, you cannot claim extra for evening meals, even if you are at a temporary workplace. If you are on an overnight business trip, the dispensation should cover the actual cost of hotels and meals whatever the cost (provided it is reasonable) so the £9.50 limit should not be an issue. If the £9.50 is for overnight stays too, then your employer should ask HMRC to substitute "reasonable costs" instead for these claims, which is the usual wording for most dispensations.

The best bet for your employer may be to adopt the benchmark rates and ask for these to be included in their dispensation. Then, you can claim up to £15 for an occasional evening meal without it appearing on your P11D. Employees will have the choice of claiming either their actual expenses or the benchmark rates for day-to-day subsistence (such as lunch) but not both, not on the same day anyway. However, if employees can claim up to £9.50 for lunch under the terms of the dispensation, then it would be best to stick with this, at least for the lunch claims.

Alternatively, your employer could negotiate a higher rate just for employees working late, as £9.50 is clearly not enough for an evening meal as you say. They may be able to justify more than £15 for a decent pub dinner, as most of them aren't that cheap any more.

The benchmark rates should be in line for a rise as HMRC pledged to increase them once inflation went up more than 10%. I'm sure this must have happened by now, but I haven't heard any whispers on this front yet. Perhaps it's just slipped their minds!

 

 

Incredible response!  Not just a steve maclaren lookalike eh? ;)

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Replying to Piltdown Man:
By cfield
26th Sep 2014 14:01

Steve MacLaren?

JCresswellTax wrote:

Not just a steve maclaren lookalike eh? ;)

Well I'm sure I could have done a better job of managing the England football team. I certainly wouldn't have fielded an untried goalkeeper on a wet windy night in a must-draw game against Croatia!

People always used to tell me I looked like Tony Blair once, but he did something about his hair whereas I didn't.

 

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By bluetone
26th Sep 2014 13:24

Thank you cfield

Thank you for the full response. I'm afraid I wasn't clear in my question. I am the accountant responsible for maintaining the dispensation and operating the expenses system at the limited company. I have received a new dispensation today after it was reviewed, and the HMRC officer has deleted the "reasonable costs with receipts" dispensation paragraph and replaced it with scale rates lower than their published scale rates!!

As it now stands, if we pay anything above the scale rates in the dispensation do we have to payroll them and the employees claim deductions on their self assessments, or can I pay the expenses in full direct to the employees and report them on the P11Ds, then the employees should make a claim for "wholly & exclusively" expense deductions?

I am about to write to HMRC to ask them to reinstate the old paragraph and to delete the scale rates. It's very clear on the dispensation that we can't pay any amounts without receipts so the scale rates are pointless.

I tried calling them but the whole section has gone out for lunch and apparently they may not be back today!! I wonder if they'll be claiming expenses!

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Replying to ireallyshouldknowthisbut:
By cfield
26th Sep 2014 14:07

Your dispensation

bluetone wrote:

Thank you for the full response. I'm afraid I wasn't clear in my question. I am the accountant responsible for maintaining the dispensation and operating the expenses system at the limited company. I have received a new dispensation today after it was reviewed, and the HMRC officer has deleted the "reasonable costs with receipts" dispensation paragraph and replaced it with scale rates lower than their published scale rates!!

Sounds like you have a problem then. Tell you what - PM me and I'll see what I can do. We're not allowed to bring up the grubby subject of money on the public forum!

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Replying to anitaok:
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By bluetone
26th Sep 2014 14:29

Thanks

Sounds like you have a problem then. Tell you what - PM me and I'll see what I can do. We're not allowed to bring up the grubby subject of money on the public forum!

[/quote]

 

Thanks for the offer but I'll try to deal with it first and just call in the experts if I get nowhere. I was just wondering if this was a general trend and a battle I would lose.

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Replying to ireallyshouldknowthisbut:
By cfield
26th Sep 2014 14:14

Out to lunch

bluetone wrote:

I tried calling them but the whole section has gone out for lunch and apparently they may not be back today!! I wonder if they'll be claiming expenses!

I reckon they're "out to lunch" all the time!

We always felt it was quite important to have someone "man the phones" at lunch time when I was a wage slave.

It's also very difficult to contact them after 4pm when they seem to have an unofficial policy of not taking phone calls. The person you want to speak to is almost always "out".

 

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