Claiming back expenses from your own Limited Company
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Pretending you’re an employee again!
If you have ever been employed and had to submit expense claims, you will be familiar with this process. Now that you’re a director of your own limited company, you need to follow the same sort of process that regular employees have to follow. It’s done this way, because you are trying to keep corporate matters corporate and private matters private!
The best thing would be to get all your suppliers to bill the company directly, and get the company to pay them directly. If that could be done, you would never have to fill out an expense claim form! However, try asking your taxi driver to invoice your company! It doesn’t work like that! And so you end up paying for things like taxis out of your own cash. And remember, we are talking about business expenses only here, so I expect that this particular taxi journey was a visit to a business client?
Keep the receipts for all of the things that you buy personally, on behalf of your business. Then once a month (or perhaps at some different interval) fill out a claim form and get the company to reimburse you. If there is ever a records inspection by the tax office, they will want to see the claim forms with the receipts attached, and they will also check that the reimbursements on the company bank statements match the amounts claimed on the expense forms.
We recommend that mileage is claimed at the HMRC approved rate. That’s currently the FPCS rates and these have been the same for several years up to and including 2010/11.
- 40p per mile – first 10,000 miles per year
- 25p per mile – additional miles
Withe effect from 2011/12 the first of those rates increased.
- 45p per mile – first 10,000 miles per year
- 25p per mile – additional miles
No other motoring costs are to be claimed. The FPCS rates from HMRC are calculated by the AA so as to cover all the conceivable running costs of having a car! That means that you have to keep a log of all of your business journeys in your own car.
Separate out any expense receipts which are in foreign currencies and prepare an individual claim form in each separate currency. That way the sub-totals do not end up with mixed currencies.
Non-VAT Registered Businesses
Use two forms, one form for mileage and just one form for all other business expenses. Separate the receipts by category and claim back the gross amount including VAT. Use the non-VAT form in the samples below, and just put all the figures on that.
VAT Registered Businesses
Use three forms, one form for mileage and two separate forms covering business expenses with VAT and business expenses without VAT. It’s easier if you separate your receipts first according to whether they have VAT on them or not. Then categorise them and claim them back on the relevant form.
The VAT on fuel can be reclaimed, but beware that the total fuel costs may be less than the total claim for mileage. You can only claim back actual VAT incurred, and not notional VAT based on the HMRC rate. That’s why the mileage figure is normally split at the foot of the mileage claim form and then apportioned between the VAT claim and the non-VAT claim forms.
As a director/employee you are claiming back all of the gross amounts including VAT. It’s the book keeper who needs to know which items include VAT and which ones don’t. And that’s why there are three different forms for VAT registered businesses.
Book keeping and sample forms
If you are doing your own book keeping, use the totals at the foot of each column and post them into your software. To download a sample form (MS Excel) right click on the link and select “save as” . . .
These general purpose forms may need to be adjusted to suit your business. Once you have them in a format which you are happy with, we recommend that you stick with that! That way, you and your staff will become accustomed to the process.
Expenses in the first month or two
What normally happens to a new business, is that you have expenses which you want to reclaim, before you have any funds to pay them. There are two ways to handle this dilemma.
- Wait until the business can afford to make the reimbursement.
- Introduce working capital (of your own) into the business, and then reimburse yourself!
That second one sounds odd, but at least you build up the bank transactions that you’re looking for. Over the course of the financial year these movements of capital accumulate and are shown in the annual accounts as a loan from the director to the company. Take care, because capital movements can sometimes work the other way. If you take too much capital out of the company, the loan is the other way around and there can be adverse tax consequences.
Recharging Expenses to customers
There are two separate activities involved here. They are independent of one another, although you may think they are linked. If your company recharges expenses to a customer and none of the employees are involved in a claim then the process is dealt with here.
However, if your employee (or you the director) want to reclaim something, then it’s just another item on your own expenses claim form addressed to your company. Whether you want one claim to be settled before the other is settled is simply a personal preference. In a legal sense they are two completely different obligations as shown in the diagram.