Another Limited Company / Expenses Query

MerrionPippin

Was hoping someone could advise as I fear Ive misunderstood how this works.

I'm contracting in the UK. An accountancy company have taken care of setting up a limited company for me. For example, my daily rate is £600 per day.

For example, I work 20 days in a month. That's a gross of £12,000 per month. That would be a take home/gross pay of £8,000 per month, assuming a retention rate of 66%.

My primary residence is still Dublin, so I've been advised my AirBNB costs while in the UK can be claimed back as expenses. If, for example, this costs £2,000 per month - where does this figure into my calculations?

As an employee of my limited company, I was under the impression I would get my £8,000 gross pay, and my £2,000 rent expense back. Is that right? i.e. I would get £10k each month (though I'd only be up £8k as I have paid the £2k rent up front at the start of the month from my own personal account).

But I fear I've calculated this wrong. Can someone give me a very easy/basic example of how it would work?

barneystinson

MerrionPippin wrote: »

Was hoping someone could advise as I fear Ive misunderstood how this works.

I'm contracting in the UK. An accountancy company have taken care of setting up a limited company for me. For example, my daily rate is £600 per day.

For example, I work 20 days in a month. That's a gross of £12,000 per month. That would be a take home/gross pay of £8,000 per month, assuming a retention rate of 66%.

My primary residence is still Dublin, so I've been advised my AirBNB costs while in the UK can be claimed back as expenses. If, for example, this costs £2,000 per month - where does this figure into my calculations?

As an employee of my limited company, I was under the impression I would get my £8,000 gross pay, and my £2,000 rent expense back. Is that right? i.e. I would get £10k each month (though I'd only be up £8k as I have paid the £2k rent up front at the start of the month from my own personal account).

But I fear I've calculated this wrong. Can someone give me a very easy/basic example of how it would work?

Are you operating through an Irish company or a U.K. Company?

srsly78

And why do you think you can claim rent expenses? It doesn't matter where your primary residence is.

MerrionPippin

barneystinson wrote: »

Are you operating through an Irish company or a U.K. Company?

UK Company

MerrionPippin

srsly78 wrote: »

And why do you think you can claim rent expenses? It doesn't matter where your primary residence is.

That's what my accounting company have advised.

Overnight accommodation

Provided it is necessary to stay away overnight HMRC will allow a reasonable cost of overnight accommodation,
plus meals. In addition your company can make a payment of £5 per night (£10 if you are abroad) to cover
incidentals that would not otherwise qualify for tax relief – for example, newspapers and laundry.

HMRC are happy if you decide to stay in rented accommodation (normally because it is a cheaper alternative)
provided it is close to the workplace and the accommodation is in keeping with requirements. You cannot, for
example, stay in a 5 bedroom house by a golf course 50 miles away from the workplace. Note that if you have
your own accommodation you will have the facilities to prepare your own meals which will not qualify for meal
allowance.

CIARAN_BOYLE

MerrionPippin wrote: »

That's what my accounting company have advised.

Please note that both the HMRC and the Irish revenue commisisoners have issued documents stating that travelling or accomodation to a permanent or semi permanent place of work is not allowable but travelling and accomodation to once off or temporary jobs are allowable. So two situations

1. If you live in Ireland contract regularly in the uk with a single client in a single location thats you are essentially an employee with a fixed permanent place of work. How you get there and how you are accomodated is your own business and there's no tax relief.

2. If you live in Ireland contract in the uk with a range of clients in different locations there is tax relief for travel and accommodation.

Situation one is what your description sounds like.

Anyway regarding your situation

The company would pay you a gross wage deduct whatever taxes at source and give you whatever the rental expenses should be on top of that. So let's say your gross wage is 12k and your tax is 20% and your take home is 9.6k. Then we change things so your gross is 10k your tax is 2k and your expenses is 2k. Your take home would be 10k.

MerrionPippin

Thanks for the above.

I've confirmed all the above to the accounting company before, ie. that I'm working in London for a few months for a single client, will be paying for accommodation over there while maintaining my primary residence in Ireland. They've assured me that I can claim the accommodation as a refundable expense.

Any reason they'd confirm that when your comment sounds like it shouldn't be refundable? Is the 24 month rule not applicable here for HRMC, ie. I'll only be contracting for 6 months and thus it can only be considered temporary?

AFAIK, there's 2 rules - 40% rule and 24 month rule.

1. If I spend less than 40% of my time at the location, it's considered temporary. This doesn't apply to me as I'm there 5 days out of 5.

2. If I don't pass the 40% rule, then the 24 month rule applies. As I'm only there for 6 months, it's considered temporary.

CIARAN_BOYLE

First I would like to confirm that I am not a UK tax professional.

My knowledge is more suited to the Irish tax system.

To me the outstanding point that I didn't mention above is that to my understanding you need a permanent place of business before something can become temporary.

If you are happy with your advice feel free to go with it.

Going back to your first point the key item you are missing is that between your gross pay and your take home pay you will have pay income taxes.

srsly78

MerrionPippin wrote: »

Thanks for the above.

I've confirmed all the above to the accounting company before, ie. that I'm working in London for a few months for a single client, will be paying for accommodation over there while maintaining my primary residence in Ireland. They've assured me that I can claim the accommodation as a refundable expense.

Any reason they'd confirm that when your comment sounds like it shouldn't be refundable? Is the 24 month rule not applicable here for HRMC, ie. I'll only be contracting for 6 months and thus it can only be considered temporary?

AFAIK, there's 2 rules - 40% rule and 24 month rule.

1. If I spend less than 40% of my time at the location, it's considered temporary. This doesn't apply to me as I'm there 5 days out of 5.

2. If I don't pass the 40% rule, then the 24 month rule applies. As I'm only there for 6 months, it's considered temporary.

No way. Anyone could expense their rent in that case, until they had been 2 years in the job. Clearly this is not correct! Those rules sound the ones for residency/domicile which is a completely different topic.

You should also go read up about IR35 and how contractors get screwed in the UK. Lots of people around that got bad advice then landed with huge tax bill several years later.

This is what you need to be careful of: https://www.gov.uk/topic/business-tax/ir35/latest

MerrionPippin

srsly78 wrote: »

No way. Anyone could expense their rent in that case, until they had been 2 years in the job. Clearly this is not correct! Those rules sound the ones for residency/domicile which is a completely different topic.

You should also go read up about IR35 and how contractors get screwed in the UK. Lots of people around that got bad advice then landed with huge tax bill several years later.

This is what you need to be careful of: https://www.gov.uk/topic/business-tax/ir35/latest

I know where you're coming from, but I'm positive it's an Expenses rule and not a Residency rule. It only applies to contractors, and I have to provide proof that (i) my contract is not longer than 24 months, and (ii) that I still have a primary residence in Ireland. Permanent/full time staff would be unable to provide those proofs. That's how most UK accounting companies I researched explained it too.

Re: IR35, I'm not too knowledgeable on it but I've been assured I won't be impacted.

@CiaranBoyle - thanks re: the calculations. Seems like Tax 101 but that's where I was going wrong!

srsly78

That's the problem, lots of umbrella companies/accountants go around telling everyone they have "ir35-proof" contracts - then HMRC finds otherwise. I have buddies in the UK that will not work a full week for a client, they will always split their work over 2 clients to avoid ir35.

ThumbTaxed

I love the way someone asks a question and then proceeds to 'educate' those who answer it

MerrionPippin

ThumbTaxed wrote: »

I love the way someone asks a question and then proceeds to 'educate' those who answer it

Glad you're having a giggle, but I didn't ask if my accommodation was a valid expense. I simply asked about the calculation and where my expenses fit in.

So tell me, given the question I asked - where did I try "educate" anyone?

srsly78

It sounds like you are dealing with an umbrella company rather than a proper accountant. Umbrella company will tell you anything so that you will sign up and they can take a cut of your income.

wally1990

MerrionPippin wrote: »

Was hoping someone could advise as I fear Ive misunderstood how this works.

I'm contracting in the UK. An accountancy company have taken care of setting up a limited company for me. For example, my daily rate is £600 per day.

For example, I work 20 days in a month. That's a gross of £12,000 per month. That would be a take home/gross pay of £8,000 per month, assuming a retention rate of 66%.

My primary residence is still Dublin, so I've been advised my AirBNB costs while in the UK can be claimed back as expenses. If, for example, this costs £2,000 per month - where does this figure into my calculations?

As an employee of my limited company, I was under the impression I would get my £8,000 gross pay, and my £2,000 rent expense back. Is that right? i.e. I would get £10k each month (though I'd only be up £8k as I have paid the £2k rent up front at the start of the month from my own personal account).

But I fear I've calculated this wrong. Can someone give me a very easy/basic example of how it would work?

Your accountant is confident that you are outside of the scope of IR35

You are earning a contracting fee
More than likely your fee is paid out of your gross salary to your accountant for their service therefore not subject to income tax and NI in the U.K.

Assuming you are drawing 100% of sales/earnings as salary and not leaving a profit in the company , the expenses are being drawn from your gross earnings tax free thus not paying income tax and NI on them so getting tax relief

Expenses aren't 100% reimbursed unless your client is paying your expneses invoices separately from your hourly rate work etc

Expenses have to come out of your own salary ( sure where else would the money come from)

The payment for rent comes out of your net salary (paying the landlord / airbnb) and you get tax relief on the cost when you claim the expense

You have took a contract that is expected to be less than 24 months so your accoutant is confident the rent is claimable as you fall under the temporary workplace ruling

Your accoutant is an advisor
You are the sole director of the limited company also known as an umbrella company for the purpose of the contract work

This is how it seems, hope that makes more sense

E.g. Earnings of 10,000 expenses = 0
Fee = 100
Taxable salary 9,900

B

Earnings 10,000
Expenses 1000
Fee 100
Taxable salary 8900

You didn't pay tax on 1100 so this is where your saving money e.g. Tax relief
Figures are just an example