... I have client who travels a fair bit (who doesn't!) they approached me the other day asking about their mileage costs. They know they can claim back the .45p a mile and no other expenses for the vehicle; Their main question to me is: if they tot up the costs for mileage it pushes the accounts into a loss, ideal for the tax man purposes, but not for the business...
Could the money be 're-invested' into the business as captial to keep the company in the black? And they use some of this money as costs for the vehicle, ie services/tyres/etc.... I cant find anything online about this and im worried that its borderline 'fiddling the books'. As I've not been doin it for long i thought I'd ask you more experienced guys n gals!! :D
Introducing capital does not affect the Profit and Loss Account. Profit and cash flow are separate things.
One way to increase profit is to reduce expenses (mileage), another is to increase income (client charges), i.e. charge enough to cover the expenses of all that travelling!
To record the mileage amount (assuming it is 10k business mileage done in the year) the double entry would be
Dr Motor Exps £4500
Cr Cap Int (Sole Trader) / Director Loan (Ltd Co) £4500
So there isnt any monies actually moved? All it is is to show a cost for mileage for business purposes. The owner has used their own vehicle for business purposes and there are entitled to be compensated
If they dont want to show a loss (from a commercial viewpoint) then they dont need to claim the full 45p per mile. They can claim whatever they want up to this point.
You're suggesting that he sort-of claims 45p per mile, but puts the difference back into the business as capital. So in fact he does claim 45p per mile, in order to have the money left over to put back in. But remember, the 45p per mile in an *expense*, which affects the profit and loss account, whereas the capital is, well, *capital*, which affects the balance sheet (and, importantly for what you are trying to achieve, NOT the profit and loss account). So doing what you suggest will not reduce the business's losses.
Even if you didn't actually claim 45p per mile and just moved the difference (the £2000 in your example), that's still Dr Expenses 2000 Cr Capital 2000 at the end of the year - the end result is the same, the whole 45p per mile is booked to expenses, just in two bits.
As Mark said, you'd have to *actually* claim less than 45p per mile, i.e. reduce the expenses. So estimate from past experiences, etc, what the actual cost per mile is, and claim that instead. Then hope you don't have a big repair, because from what I understand from other topics here, you can't both claim an amount per mile AND claim extra repairs, etc, you have to do one or the other.
Edit: Or put prices up so that the income from clients actually covers the expenses incurred in running the business. Or don't travel so much; do more online, using snail mail, telephone, Skype, etc.
-- Edited by Rob-f58049 on Friday 1st of June 2012 10:46:45 AM
I don't understand. Nothing wrong with my understanding of what MarkS has posted, I just don't understand why that helps you, Gary - the full £4500 is still shown as an expense, and the rest are all balance sheet items, and so the profit and loss account will still show a loss. Wasn't the point of your original question to find a way of not showing a loss?
Edit: Calling you Gary! (-;
-- Edited by Rob-f58049 on Friday 1st of June 2012 11:49:48 AM
Yeah thats right Mark, thats more or less spot on. The owner is using their own vehicle, and they want to show the expense (for using it) yet dont want to take say the £4500 out of the account as this is way more than what he spends per mile. (Using an eco van he can keep costs low).
Now say he had to pay for a service, plus say 2 new tyres, he takes that out of the £4500 (which i belive he is allowed to as the company owes him for using his own van) and that costs him say £500 pounds. Then he reimburses himself for the cost of the fuel he ACTUALLY spent, again say £2000. This leaves £2000; now rather than taking this 2k to do what he wants to (as its owed to him by company for mileage done) what if he reinvests it as capital back into the company?
Is this allowed? (and explained better?)..... lol :)
Then hope you don't have a big repair, because from what I understand from other topics here, you can't both claim an amount per mile AND claim extra repairs, etc, you have to do one or the other.
Thats correct; The 45p a mile is to cover all these costs in owning and using a vehicle for a business. the other option is as we know to put everything through fuel/services/tax/etc etc. and use a proportion of that (as its used 50:50 work and pleasure for this client) to work out the claim... which is, again as we know, more complicated than just claiming the 45p.
So thats the option he used, and one i shall insist on. I see what you all mean about it affecting profit and loss, I shall have to speak to him and see what he says about it.
At the end of the day all the mileage adjustment is to recognise the costs of the owner using their own vehicle for business purposes. No actual money changes hand.
So if a sole trader the double entry is
Dr Motor Expenses £4500
Cr Capital £4500
If a ltd company the double entry is
Dr Motor Expenses £4500
Cr Directors Loan £4500
In the sole trader the business is the same legal person as the owner so they cant owe themselves money. The capital balance is whatever monies they have introduced to the business less what they have drawn.
In the ltd company the company as it is a separate legal person from the owner owes the owner for using their personal vehicle for business purposes. Whether they are repaid the amount owed will depend on how much is in the business bank accounts.
Only the mileage adjustment affects the profit. Any additional funds he introduces doesnt have any affect on the profit just on the balance sheet
In your example above the double entry assuming 10k business mileage would be
Dr Motor Expenses £4500
Cr Capital/Directors Loan £4500
Dr Capital/Directors Loan £500
Cr Bank £500
for service and tyres
Dr Capital/Directors Loan £2k
Cr Bank £2k
for reimbursing petrol spent
The net effect of the above journals is
Dr Motor Expenses £4500
Cr Bank £2500
Cr Capital/Directors Loan £2000
So by claiming the full mileage they have effectively introduced £2k into the business that they can draw down at a later date as cashflow permits. If they dont want to claim the full mileage allowance (from a commercial viewpoint so as not to show a loss in the accounts) then this is fine and they can claim whatever p per mile they want up to 45p per mile for the first 10k miles and 25p thereafter. I am sure they can claim the shortfall in their tax return (though not sure if an individual can do this an employee certainly can).
The original question was not refering to whether it was a profit or loss, i was just asking as the client wanted to know what he could do. As i was unsure of the ramifactions of doing this I posted on here to seek clarifacation as what to do. when i see them next i will state that yes the loss will be noted in this business but all he was asking for was could the money be re-invested with no questions asked from the likes of HMRC. Which is what you you have both helped me understand. Thanks
