# Contractor expenses reimbursed?



## jkenefick (15 Jul 2008)

Hi,
I'm an Irish contractor working in Ireland, who has set up his own company and all that. I am confused about the issue of expenses. It seems to me that expenses are reimbursed and that no expenses actually cost anything. I am sure i'm missing something here...

If I buy a 30 euro book for my company say, then I spend 30 euro. Now this is a business expense, and therefore comes off of my income. My income minus this 30 euro is then taxed and my net profit is attained. But then according to my accountant's example this 30 euro is RE-ADDED to my net profit. Isn't this mad?? It seems to me like the book is essentially free coz you lose 30 euro buying it, then the 30 euro comes off the income to give you a lower value to be taxed on, and then its re-added gross at the end, in effect cancelling your purchase of it while still lowering your tax. What am i missing!

This has to be an incorrect interpretation. Can anyone help me?

Thanks


----------



## mathepac (15 Jul 2008)

*Re: Contractor expenses reimbursed??*



jkenefick said:


> ...Can anyone help me?...


Your accountant maybe?


----------



## ButtermilkJa (16 Jul 2008)

It's free to you as an individual, but not your company (I know it's one in the same in the end). It doesn't have anything to do with your tax or net income. Expenses are tax-free for an employee and are dealt with totally separate from salary/wages.

You pay €30 for it out of your own money. You claim it as expenses at the end of the month. Your company then gives you €30. So it hasn't cost _you_ anything but your company is down €30. The company can now claim this as an pre-tax expense just like any other business expense.

You really didn't think things were free did you


----------



## z106 (16 Jul 2008)

jkenefick said:


> Hi,
> I'm an Irish contractor working in Ireland, who has set up his own company and all that. I am confused about the issue of expenses. It seems to me that expenses are reimbursed and that no expenses actually cost anything. I am sure i'm missing something here...
> 
> If I buy a 30 euro book for my company say, then I spend 30 euro. Now this is a business expense, and therefore comes off of my income. My income minus this 30 euro is then taxed and my net profit is attained. But then according to my accountant's example this 30 euro is RE-ADDED to my net profit. Isn't this mad?? It seems to me like the book is essentially free coz you lose 30 euro buying it, then the 30 euro comes off the income to give you a lower value to be taxed on, and then its re-added gross at the end, in effect cancelling your purchase of it while still lowering your tax. What am i missing!
> ...


 
Teh best way to look at it is that basically you get back 41% of the price of teh book back.
i.e. you get teh book for 59% of teh price.


----------



## ButtermilkJa (16 Jul 2008)

Or 46% off... if you include PRSI & Health Levy at 5%


----------



## z106 (16 Jul 2008)

ButtermilkJa said:


> Or 46% off... if you include PRSI & Health Levy at 5%


 
Ya - I was never sure about the prsi sid eof it.

So basically you get back 46% yes?

You sure?

What do you mean by health levy?


----------



## mathepac (16 Jul 2008)

jkenefick said:


> Hi,
> I'm an Irish contractor working in Ireland, who has set up his own company and all that. I am confused about the issue of expenses. ...


  From the sound of it you are not the only one confused. I don't think you should be guided by some of the above posts - the logic and calculations in them I cannot fathom. I believe you need to speak with your accountants and if they insist of speaking "accountingese" rather than English, find a different firm. You are their client and you are paying them.



ButtermilkJa said:


> It's free to you as an individual, ...


Thats not true as its company property.


ButtermilkJa said:


> ... Expenses are tax-free for an employee ...


Thats not true - only allowable expenses incurred solely and exclusively in the discharge of your duties to the company are tax-free.

If in the eyes of your accountants or the Revenue, reimbursed expenditures do not meet the above test, then they will be taxed as income.

You will need to hear from your accountants what level of documentation / receipting they require for "petty cash" expendiures.


ButtermilkJa said:


> ...You pay €30 for it out of your own money. You claim it as expenses at the end of the month. Your company then gives you €30. So it hasn't cost _you_ anything but your company is down €30. The company can now claim this as an pre-tax expense just like any other business expense. ...


That part sounds fine. The rest of the discussions about PRSI, health levies, etc. has nothing to do with your original questions.

I still feel you need to speak about the calculation you say your accountant gave you as I'm not sure I understand it, but hey, I can't speak accountingese either.


----------



## ButtermilkJa (16 Jul 2008)

PRSI is made up of _3% Social Insurance_ and _2% Health Levy_ (for self-employed)

More info...


----------



## ButtermilkJa (16 Jul 2008)

mathepac said:


> ...
> Thats not true as its company property.


Technically speaking it is company's property, but if you are owner/manager of your own business and you buy a reference book to aid your business then you have sole use of it and you didn't pay for it out of your own taxed wages.


mathepac said:


> ...
> Thats not true - only allowable expenses incurred solely and exclusively in the discharge of your duties to the company are tax-free.


I didn't mention otherwise . As the example above explains, buying a reference book, trade magazine, etc is a perfectly allowable expense.


----------



## sartay (6 Aug 2008)

> _ 					Originally Posted by *jkenefick* http://www.askaboutmoney.com/showthread.php?p=670215#post670215
> If I buy a 30 euro book for my company say, then I spend 30 euro. Now this is a business expense, and therefore comes off of my income. My income minus this 30 euro is then taxed and my net profit is attained. But then according to my accountant's example this 30 euro is RE-ADDED to my net profit. _



Did you get this 'example' from a firm who tells you they will 'maximise your take home pay'? My boyfriend is a contractor and we've seen dubious examples on excel sheets sometimes from these companies who claim they are better than other companies at handling your tax and expenses because they can 'maximise your take home pay'. They know you dont fully understand but want to show you a nice profit so you think you will be better off if you use them rather than another company.

Im not saying that IS whats going on but if they can't explain it clearly and logically to you I'd be a bit suspicious.


----------



## Midsummer (9 Aug 2008)

I think it is an incorrect interpretation as you say.  I think you're confusing "adding back" items to your net profit for the tax calculation.  Items are added back when they're disallowable for tax - in order to come to a taxable amount.


----------

