Tax treatment of director's private expenditure

What is the most tax-efficient way of reimbursing director's private T&S expenses?

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Hey everyone,

Thanks a lot for taking the time to read this.

The situation involves my client (a ltd company director of an IT consultancy business) potentially completing some contract work falling inside IR35. As such, the workplace he'll be travelling to will be classed as permanent, thus rendering all travel and subsistence costs (including overnight accommodation) non-business in nature. It's a largely theoretical problem as my client will most probably simply pay these expenses from private funds, but I was curious as to the possible tax treatments available if they were paid for with the company credit card instead. I know it's a bit pedantic but it'll just keep bugging me otherwise.

I believe these are the most obvious options:

1) Treat the expenses as additional director's remuneration. Allowable for corporation tax purposes and taxable via PAYE (being subject to usual IT and Ee and Er NIC). No VAT reclaimable.

2) Treat the expenses as debits to the Director's Loan Account. No effect on CT or PAYE (and no BiK or s455 tax assuming DLA balance is minimal and cleared before the end of the accounting period). No VAT reclaimable.

3) Treat the expenses as benefits in kind reimbursements. Would this be allowable for CT? Would the company be able to reclaim input VAT on it (I'm assuming not)? As the company would be paying for it directly but the director would arrange it himself, I take it it would need to be processed through payroll via PAYE (as 'Other Earnings') but with only Class 1 NIC deducted and no IT. Is this correct (for both private travel and private subsistence costs)? And it would need to be included on a P11D but no Class 1A NIC would be deducted, right?

I'd really appreciate some clarification as otherwise I'll be going crazy thinking about it. It's really only that third scenario I'm not sure about.

Again, thanks for your help and time!

Replies (14)

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By Accountant A
30th Jan 2020 19:34

Are you "the client" by any chance?

In your first posting last year you described yourself as "the sole director of a UK-based VAT-registered limited company". Doesn't mean you aren't an accountant in practice but I've got a shiny Brexit 50p here says you aren't.

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By mad_dwarfer
30th Jan 2020 19:48

Haha, I admire your investigative prowess! But I'm not "the client" I'm afraid. I am in fact an accountant in practice, though still learning, as we all are I imagine.

This really is just something I'm trying to clarify for my own sanity, crazy as it may seem.

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By Matrix
30th Jan 2020 20:05

Taxable as earnings with no use for the loss in the company if all IR35 so no point.

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By mad_dwarfer
30th Jan 2020 20:21

Thanks a lot for your response, Matrix.

However, most of the client's work falls outside IR35 and so any available CT reliefs are useful. Would the treatment as a BiK payment actually be allowable for this (I'd assume not as it relates to non-business expenses). I also assume no input VAT would be reclaimable by the company for the same reason?

From reading the info on 'Private travel' in the following HMRC info (hardly an authoratative source I agree)

https://www.gov.uk/expenses-and-benefits-travel/what-to-report-and-pay

I gather it could either fall under 'You arrange transport and pay for it' or 'Your employee arranges it and you pay the supplier directly' as it's a director we're talking about.

Would this apply to private overnight accommodation costs too, or just strictly travel?

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Replying to mad_dwarfer:
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By Matrix
30th Jan 2020 21:00

There isn’t any VAT on travel. Earnings are deductible as a business expense.

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Replying to Matrix:
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By mad_dwarfer
30th Jan 2020 21:48

Indeed, but there is VAT on accommodation and meals.

I'm fine with the treatment as additional remuneration. I guess what I'm trying to clarify (probably by asking in the most convoluted way possible, sorry) is whether these expense payments could instead be classed as benefits in the sense that they're supplied directly by the company (and paid directly by the company). If so, as stated in the 'Private Travel' section of

https://www.gov.uk/expenses-and-benefits-travel/what-to-report-and-pay

would this result in only Class 1A NIC being payable and no IT or Class 1 NIC? In addition, would these payments still be allowable for corporation tax relief?

If this is an allowable method, would it also be allowable for payments of private meals and overnight accommodation during the same journey, and would input VAT be reclaimable on these payments by the company (obviously only on expenses that included VAT!)?

Thanks again, I understand this is basic stuff and really do appreciate your time and help.

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Replying to mad_dwarfer:
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By Matrix
30th Jan 2020 21:51

If this were my client and their engager was not paying for accommodation then I would argue that this contract is outside IR35.

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Replying to Matrix:
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By mad_dwarfer
31st Jan 2020 00:24

I agree this is something that would usually be included in the contract in this situation, and my client's fees normally include a portion to cover the cost of overnight accommodation when required. However, these have all been non-IR35 contracts and as such his company can pay these costs directly via the company credit card as business expenses without any additional tax liabilities.

My client has only just found out about this potential future contract, which will be within IR-35, and I've provided him with calculations showing the 'grossed-up' daily rate to charge to negate the impact of the potential increased tax liability that comes with it. The engager appears to be happy to pay an increased rate and any included portion to cover accommodation would therefore also be 'grossed-up'. As such, my client will most likely pay for the (now non-business) travel and accommodation costs with private funds and then effectively be reimbursed for these when he receives the 'grossed-up' salary payment. No issues here.

My question regarding the scenario where the company paid for these private travel and accommodation expenses directly via the company credit card instead of him paying with private funds is purely hypothetical and just for my own peace of mind. I have a (probably unhealthy) habit of considering various possible situations in tangent to the real one just to try and understand the tax and accounting treatment required and was curious as to the best way to deal with this one. Hence why I was wondering if the paid-for costs in this case could be treated as benefits supplied to my client directly by his own company and subsequently only subject to Class 1A NIC (instead of processing them through payroll and suffering IT and Class 1 NIC).

The info shown in https://www.gov.uk/expenses-and-benefits-travel/what-to-report-and-pay seems to suggest this is allowed, at least for the private travel expenses. I'm still unclear if the private accommodation would be allowed to be treated in the same way, if these payments would then be allowable for corporation tax relief and if input VAT would be reclaimable on the accommodation and meal payments.

Sorry for the overly-long blurb. Huge thanks again as always.

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By Tim Vane
30th Jan 2020 20:24

An accountant in practice eh? Hope your clients appreciate that you are practising on them!

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Replying to Tim Vane:
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By Tax Dragon
31st Jan 2020 06:45

Anyone who thinks they know it all and don't need to keep learning/looking stuff up may have forgotten that the rules keep changing. Were someone to engage in constructive discussion with the OP, we might actually get a thread reminiscent of Any Answers heyday. Would that be such a bad thing?

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Replying to Tax Dragon:
Galaxian
By Galaxian
31st Jan 2020 07:12

I’ve been away from AW for a while and have been reading some responses. The attitude of certain individuals is quite shocking. Perhaps it’s the time of year....

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Replying to Galaxian:
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By mad_dwarfer
31st Jan 2020 11:07

Thanks you two, it's always a pleasure to see people actually willing to help and support each other on here. It's a shame the atmosphere of the place can appear so sour at times, but I'll put it down to years of bad clients wearing people's humanity down! Gotta feel sorry for them in all honesty.

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By mad_dwarfer
30th Jan 2020 20:38

Yep Tim, they're ecstatic.

Can I assume from your lack of answer that you'll also find it useful to see people's opinions on this? Apologies if I've misinterpreted it.

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Replying to mad_dwarfer:
ALISK
By atleastisoundknowledgable...
30th Jan 2020 21:46

mad_dwarfer wrote:

Yep Tim, they're ecstatic.

Can I assume from your lack of answer that you'll also find it useful to see people's opinions on this? Apologies if I've misinterpreted it.

Burn Tim, burn.

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