Freelancers' Questions: Who pays for postage, me or the client?

Freelancer’s Question: I’ve been working as a freelance media analyst for a few years on behalf of a single company, but for different accounts. One account requires me to analyse clippings from newspapers and magazines, which come in hard copy in batches of around 100. These batches can either be collected from the company's office, or the company sends them to me by post. The company deducts the postage they have to pay for sending me the batches directly from my invoice.

I can understand that if I send the batches back, that I have to pay for postage. But how appropriate or fair is it that companies also charge their freelancers for the postage the company pays for sending the work out to the freelancer?

Also, as the company deducts their postage directly from my invoice, I don't have a receipt for that, so I assume that I can't deduct it from my taxes. Is this correct, that I’m effectively barred from making such a deduction?

Expert’s Answer: Your client has taken the view that your business should suffer the cost of the postage. They have incurred the postage themselves and deducted this amount from your sales invoice. In effect, this makes their position tax-neutral as they are passing the cost to yourself to claim via your business.

It is unusual that this cost has been passed on to you as the amounts are relatively insignificant and as the client has incurred this cost directly, postage can be claimed via their own business.

I would check your contract agreement to see if there are any clauses which would explain this.

However, in respect of your own business, the general rule when it comes to claiming business expenses is that they must have been incurred, wholly, exclusively and necessarily in the course of running your business. HM Revenue & Customs does require evidence of receipts to support the expenditure and it is incredibly important that you continue to do this as much as possible.

Yet in exceptional circumstances; expenses can be potentially claimed without a receipt as long as they are genuine business expenses which you have incurred and there is no personal element to the expense.

As evidence of payment has been made by deduction from your sales invoice, then as long as this is noted on their remittance advice when they pay your invoice, then this should not be an issue.

To provide added assurance, you should retain the envelope with the franked/stamped cost of the postage delivery with your sales invoice; the two amounts should match the deduction in your invoice.

As a footnote, there are a number of expenses where receipts are not produced, such as parking costs and toll charges. HMRC will allow these costs without production of a receipt as long as the costs are reasonable and have been incurred in the running of the business.

The expert was Martin Hesketh, managing director of Brookson, an accountancy firm serving freelancers, contractors and the self-employed.

Editor’s Note: Further Reading - Freelancers’ Questions: Is my research trip an allowable expense?

Freelancers’ Questions: Is train fare an allowable expense?

 

19th September 2012

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