I have a client that is working as self employed, invoices for the work done but also received all expenses paid via expense claim forms direct from the customer (a lot of travelling involved) with all supporting receipts held by the company paying the expenses. Question is should these expenses be put through his accounts and shown as income and expenditure to keep HMRC happy with a paper trail (effect is Łnil on profit & loss). The expenses are paid into his personal account so my concern is if there is a HMRC inspection he would need to explain where the money came from.
Has anyone come across this before, I'm favouring putting the transactions through his accounts even though it is extra work. If they need to be shown as business income is it acceptable to put in as a CR expense rather than invoice as he doesn't want his sales revenue to be inflated artificially?
If he is self employed, he should not be claiming expenses and they should be on his invoice for his services.
I take it he is claiming those travel expenses against his current income not including these expenses?? This would then show his net profit much lower than should be.
Is he Contracting, as this could make a difference but otherwise it should all be income IMHO
I agree - expenses should - indeed must - be included in sales and expenses.
HMRC will want to see it that way.
One important thing to bear in mind is that expenses are considered to be part of turnover in determining whether the VAT threashold has been breached - as your client does a lot of travelling, this may be relevant....
You might find it helpful to search 'disbursements' on the HMRC website.
I have a separate self employed 'job' which involves providing training for a charity and I - along with the other 1000 odd people in a similar role - have a complicated system of expenses and invoices, although we're told a 'special arrangement' was made between the charity and HMRC. Probably not the case here since you don't mention it, but you never know!
