For a variety of reasons, the business structure of choice these days is a limited company. One of the perks of this is being able to claim standard rates for expenses, which means you get to write a regular cheque to yourself out of the company tax free. Hah? no tax? are you kidding? Yes I am, sort of. It just feels like that. Let me explain.

There are two ways to take care of travel, meals and accomodation expenses. The first way is to just keep all the petrol, restaurant and hotel receipts for every business trip, log them into your accounts and pay yourself back through the company, or even just use the company credit card to pay for everything. This can be very tedious after a time and if you are a sole trader I am afraid you have no other choice but to do it that way.

If you are a director or employee of a limited company however, there is a different, simpler, and usually more tax efficient way to deal with expenses.

Instead of keeping all those fiddly little receipts, you keep a record of your business trips. The record has to clearly show:

• the name and address of the director or employee;
• the date of the journey;
• the reason for the journey;
• the kilometres involved;
• the starting point, destination and finishing point of the journey; and
• the basis for the reimbursement of travel and subsistence expenses [e.g. an overnight stay away from an individual’s normal place or work].

Why it feels like tax free money, is because you may not actually spend €145 on accommodation, but for simplicity’s sake, a flat rate is used. You might have to go late one day and find yourself paying over €200, it evens out in the end. And €18 for lunch? Brown bag it from time to time and you will save tax.

Now here’s the kicker: for the mileage: YOU MUST PAY FOR EVERYTHING TO DO WITH THE CAR YOURSELF. You must pay for your own petrol, NOT with the company card, you must pay for your own car tax, mechanics bills, crash repair, loan repayments, insurance, EVERYTHING, do you hear me? Unless you do this, you will be in trouble for fraud.

For meals and accommodation: Same deal here! You cannot pay for a hotel with your company card, and then write a nice fat cheque for expenses. Some of you are saying, “Why is she telling us that, isn’t that obvious?” Hah I say, just wait til you are scrambling to reduce your taxes, the blindness will creep in around then, so go back to this blog and read it again. It’s definitely one of the few good deals around, just don’t abuse it!

So what exactly goes on the expenses sheet, and what doesn’t go on the expenses sheet?

Here is an example. I go to Dublin for the day. While I am there I buy a printer cartidge with my own money. My travel and accomodation go on the expenses sheet, my printer cartidge invoice goes in my VAT invoice folder. I reimburse myself for the printer cartridge by writing a cheque from the company for the exact amount of the cartridge, and putting it against the VAT invoice for the cartridge in my accounts. I can do that because it is an exact fixed amount, I know what it is and I have an invoice for it.

However, for my expenses, as I said, this is a notional figure based on per kilometre and overnight rates, which do not match the actual money that went out of my pocket. For this reason I have to maintain a separate log for my expenses. A sample of that log is in the spreadsheet below. Don’t be mixing up your mileage with out of pocket VAT reclaimable items you will only have to untangle it in the end.

Beware other forms of double dipping: We tend to use planes trains and automobiles to go to the capitol, you may too. It’s important that you log on the calendar how you made the journey.  For example, since we use the company card to pay for planes and trains, and if we have done that for a journey, we are not entitled to also claim the mileage.

Spreadsheet disclaimer: you need to verify the spreadsheet examples against that current going rates which you can find here:

http://www.revenue.ie/en/tax/it/leaflets/it54.html#appendix1 - for subsistence

http://www.revenue.ie/en/tax/it/leaflets/it51.html - for mileage rates

I hear the startups cry, “My company can’t afford this yet, so there’s no point.” Point, my friend. Do up the expenses sheets, and pay them out of your “Owner’s Funds” or “Director’s Loan” account in your accounts package. This will build up an amount of money owed to you that the company can pay you tax free when it can afford the cashflow. You will be a happy camper on that day.

Good habits - do your expenses sheet up every month. Sit in front of your Google calendar and AA route planner to figure out where you went and how many kilometres it was. Some directors like to save up their expenses for their holidays. That’s ok too, but log them in your accounts monthly anyway, building up the big cheque to come to you at some stage. It gives you a truer picture of your monthly profit and loss. You can play with the sheet here, if you like it, download it and work away.

Happy expensing!