Personal expenses for employees
Firstly, all expenses must be bona-fide expenses permitted by HMRC.
As explained elsewhere, all expenses are paid out of the ring-fenced fund created for each employee that he or she earns on assignment. After paying expenses, the remaining funds are used to pay salary and the costs of employment (employer’s National Insurance, etc). If expenses increase, then salary reduces, and vice versa. However, it is obviously more tax-efficient to use available funds first to draw expenses which are untaxed, and then to pay salary which is taxed.
Claiming expenses – the mechanics
The employee negotiates the fee with the client, on behalf of Competex Pro, even before he or she starts working for the company, and then almost the entire income earned by the employee is preserved in a ring-fenced fund for the benefit of that employee and used to pay his or her salary and all other costs of that employment.
As far as claiming expenses from the client is concerned, the agreement with the client as to what expenses may be charged is also negotiated in advance by the employee, again acting on behalf of Competex Pro. Having negotiated what may be charged, the normal arrangement then is to use the client’s own expense claim form to claim agreed expenses, or to set out the expenses in a format acceptable to the client. Details of the expenses actually claimed are then emailed by the employee to Competex Pro as soon as available, so that we may charge the client and the client then pay us (but see below if working through an agency).
As far as paying expenses to the employee is concerned, the expenses that may be paid free of tax and National Insurance are determined entirely by HMRC regulations. In particular, it may be that the payment of certain expenses has been negotiated with the client but that these expenses may not be paid on to the employee free of tax and National Insurance. This means simply that the fund available to pay your salary is increased.
You should claim your expenses directly from Competex Pro using our expense claim form (we are currently developing an electronic version), and you should attach or email scanned copies of invoices or receipts as appropriate.
Claiming expenses – working through an agency or provider
Each agency operates a slightly different system, and you will need to follow their guidance.
Travel and subsistence expenses
If you are working under IR35, you may still negotiate for Competex Pro to charge the client for regular travel expenses, but these will be taxed in the same way as and together with the rest of your salary. Alternatively, of course, you may be able to increase your daily rate to compensate for not claiming expenses.
On the other hand, if you can demonstrate that your assignment does not come under IR35, that you are not working under the supervision, direction and control of your end-client, and that the assignment will not last for more than 24 months, and if the client accepts this, then you may be paid travel expenses without deduction of tax.
Charging travel expenses to and from home
If your client is in agreement, there is no reason why you should not agree for Competex Pro to charge for daily travel (and/or any other expenses that they are prepared to pay) in addition to daily fees, but HMRC do not permit these expenses to be paid to you free of tax and National Insurance. Receiving payment for such expenses will increase the size of your fund, and therefore the amount available to pay you as salary.
Charging travel expenses for exceptional journeys
Competex Pro may charge the client for the cost of travel to and from any other location that you need to visit on an exceptional basis, and these expenses may be paid to you free of tax and National Insurance out of your fund, whether or not your client has agreed to pay Competex Pro. These claims should relate to actual journeys from either your home or from your client’s workplace, depending on your start point.
Items paid directly to providers:
- Personal pension contributions
- Child Care vouchers
Other expenses supported by relevant receipts and paid directly to the employee:
- Professional memberships
- Certain training courses relating to your current work
- Eyesight tests
- Itemised telephone calls
All expenses, including any amount to be paid directly to a provider, are normally paid at the time of paying the employee. Your fund would need to be sufficient to cover these expenses as well as paying your basic salary and holiday pay at National Minimum Wage (see Getting Paid), which takes priority. Therefore, a certain amount of planning may be required and appropriate arrangements would need to be made with the provider, particularly in the case of pension contributions.
All claims for expenses should be made directly to Competex Pro and, except for scale rate subsistence claims, should be supported by relevant receipts. However, please be aware that Competex Pro has a responsibility to ensure that all expenses that are incurred are wholly, exclusively and necessarily for the business (i.e. they must be both reasonable and genuine).
Staying away from home on an irregular basis
You may also claim a nightly allowance to cover the cost of personal incidental expenses while you are staying away from home overnight on business. The scale allowance set by HMRC is £5 per night spent away from home in the UK or £10 per night spent outside the UK. This is intended to cover items of a personal nature such as newspapers, laundry and telephone calls home, but if you have been charged for these things on your hotel bill, you should not also claim the scale allowance.
Competex Pro will pay the cost of staying in rented accommodation provided you always return home on days when you are not working. If you choose to stay in the rented accommodation on days when you are not working (eg the weekend or holidays), you may claim the cost of rental only for the days when you are working.
If you choose to stay with friends or family, you may pay for the accommodation but must obtain a receipt for the payment, on the basis that the recipient would include the income in his/her tax free ‘Rent a Room’ allowance of £7500 (2016/2017).
However, subsistence may be claimed only where all the following qualifying conditions are met:
- Journey time of 5 hours – £5
- Journey time of 10 hours – £10
- Journey time of 15 hours (and continuing beyond 8pm) – £25
For further information about HMRC scale rates for subsistence, see https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30240.
When you negotiate for the client to pay expenses, you may sometimes agree a mileage rate of either more or less than the HMRC approved rate. You may also arrange for clients to pay the same rate all through the year regardless of when you reach the threshold (see below).
However, you will need to restrict your own claim from Competex Pro to 25p per mile when you reach the threshold, at which point any excess above 25p per mile will go into your fund and be paid to you after tax and National Insurance.
If your client is paying less than the HMRC-approved mileage rate, you may claim from Competex Pro the full approved mileage rate for travel to and from other locations that you need to visit on an exceptional basis.
The annual mileage threshold of 10,000 miles in the tax year relates to each employment, as long as the employments are not related and, therefore, if you are working on different assignments through both your limited company and through Competex Pro, you may claim the higher rate (45p per mile) for the first 10,000 travelled for each company.
Use of mobile phones and other telephone costs
Since your mobile phone contract will not be in the name of Competex Pro, the only way to claim the cost of telephone calls from Competex Pro is to provide phone bills and itemise the calls. For this reason it may be impractical to claim for the cost of telephone bills.
Non-allowable expenses as an employee of Competex Pro
- Using your home as your office
- Accountancy fees
- Bank charges
- Insurances relating to your limited company
- Mobile phone – see above
VAT on expenses
When claiming expenses from Competex Pro as an employee, the arrangement is different. Here you should itemise all expenses including VAT where applicable, and show any VAT only where it is included. Many expense claim forms guide you through which expense items include VAT and which do not.
- Professional indemnity – limit £1,500,000 (excess £1,500*)
- Employers liability – limit £5,000,000
You are therefore not required to arrange your own insurance for assignments through Competex Pro. However, you should continue to arrange your own insurance for any work that you do through your own limited company, if applicable.
(*In the unlikely event of a claim on the PI insurance, Competex Pro would wish to recover the excess charge from the employee’s fund. However, let it be said that over a period of 20 years Competex has not been aware of any PI claim ever being brought on any of their clients!).
VAT on Competex Pro invoices
For the sake of clarity, Competex Pro charges VAT on the invoices rendered to your client and accounts for this to HMRC.
Your ‘basic pay’ will be based on the net amount of the invoice and the VAT liability will be paid to HMRC.
Continued use of your limited company
Expenses may be charged to a company and paid free of tax and National Insurance to an employee only if they have been incurred wholly, exclusively and necessarily in the running of the business. This means that expenses relating to your work through Competex Pro may be charged only to Competex Pro, and expenses relating to your work through your limited company may be charged only to your limited company.
The following gives an indication of the type of expenses you may continue to put through your limited company:
- Travel – this must relate to the work of your limited company and could for instance relate to interviews for future work
- Mobile phone charges
- Charitable donations
Be aware that you would benefit from charging such expenses to your limited company only if your limited company has retained disposable income, or if there was the prospect of acquiring disposable income at some time in the future. However, to avoid increased accounting charges, you may prefer to keep a separate record of these expenses and charge them to your limited company as and when it becomes active again.