Auto entrepreneurs: there's more to reimbursing professional expenses than expense reports
Travel expenses, purchase of raw materials for a customer: when you're a self-employed entrepreneur, you sometimes have a lot of professional expenses to run your business. As a result, you need to be reimbursed... how? By making an expense claim?
A (legal, needless to say) alternative exists to enable you to deduct certain expenses from your sales: out-of-pocket expenses. It may be the first time you've heard the word, but one thing's for sure: you'll soon fall in love with them once you understand the benefits they can bring you.
Find out all there is to know on the subject in this article co-written with Charlène Serayet, Managing Director of Dasmind and an expert in administrative management.
In a nutshell: what is an expense claim?
An expense claim is a document that formalizes a request for reimbursement of professional expenses incurred in the course of one's work.
The expense claim can be drawn up on a physical or electronic medium for transmission to the company's accounting and administrative department, which defines the formalization of the expense claim in advance to ensure uniformity.
Generally, it is validated beforehand by the manager, who checks that the ceiling has been respected and that the type of expense is eligible for reimbursement.
Are you allowed to make an expense claim when you're a self-employed contractor?
NO (sorry, it's true that it's a bit frontal). Why not? The answer almost lies in the question itself, but we'll give you a hint: your tax system is to blame. Don't cry scandal, it's your choice!
Time to review the basics of the auto entrepreneur tax system
While there are many advantages to the micro-business system, such as the ease with which you can set up your business and the simplicity of accounting, there are also a few limitations. Nobody's perfect!
In fact, all types of business can deduct expenses from their sales... except for microenterprises (out of luck). As a self-employed entrepreneur :
- you are taxed on your sales,
- whereas other companies are taxed on their profits, i.e. on their sales after deduction of expenses (but have much more stringent accounting requirements than you).
The ultra-simplified accounting you lucky people benefit from is made possible by the application of a flat-rate deduction precisely to facilitate the taking into account of professional expenses. So you're not taxed on 100% of your sales.
This flat-rate allowance varies according to the nature of your business:
- purchase and resale of goods and merchandise: 71%.
- BIC system (industrial and commercial profits): 50%.
- BNC (non-commercial profits): 34%.
This means you can 't deduct your actual expenses, i.e. deduct from your sales the professional costs you actually incur.
So it doesn't look good for you to be able to write off your business expenses as expenses. But the good news is that you still have an alternative way of getting your business expenses reimbursed in the proper way: disbursement expenses.
The technique for reimbursing business expenses: out-of-pocket expenses
What are out-of-pocket expenses?
As an auto-entrepreneur, you may have to advance expenses to be able to provide a service or make a sale. These are usually materials or raw materials.
Here are a few examples of out-of-pocket expenses
- tiles for an apartment renovation,
- oil for an oil change,
- a subscription to an image bank, etc.
You can deduct such expenses from your sales, for the simple reason that they are excluded from your tax base under article 267 of the French General Tax Code.
But let's be clear: out-of-pocket expenses are not an opportunity to make a profit (we saw you coming). The amount of disbursement charges must be strictly equal to the amount of expenses incurred.
❌ Here are a few examples of costs that cannot be considered disbursement charges:
- shipping costs,
- mileage expenses,
- travel expenses,
- restaurant expenses, etc.
💡 Good to know: you can be reimbursed for travel expenses if the invoices are made on behalf of your customer. Generally speaking, this is possible with most expenses as long as they are necessary to perform the service for your customer.
A word from the expert
Advantage of out-of-pocket expenses vs. rebilling
In the duel between deducting out-of-pocket expenses and rebilling expenses incurred, out-of-pocket expenses are the clear winner. Here's why:
- They are excluded from your overall sales, so you won't be taxed on them. On the other hand, re-invoicing expenses to your customers increases your sales, and with them, the amount of your social security contributions. You may even exceed the sales ceilings under which you can operate under this status.
- They exclude your liability for purchases. If, for example, tiles you've bought for a job turn out to be faulty, your customer will have to turn to the supplier, not you.
Let's get down to brass tacks: how do you get reimbursed for professional expenses on your own?
1. Obtain the customer's prior written agreement
To begin with, you'll need to obtain your customer's agreement in writing. This document is called an expense mandate.
In addition to serving as proof in the event of a subsequent dispute, this agreement formalizes for each purchase :
- its nature,
- and the maximum budget.
Once you have obtained this written agreement, you can proceed with the purchase.
2. Paying expenses from your business account
To ensure that your out-of-pocket expenses continue to be reimbursed, don't forget to pay for your purchase using only your business bank account.
3. Request an invoice in your customer's name
When you make the purchase in question, you'll need to request that the invoice be made out in the customer's name, not yours.
Like all invoices, it must include a certain number of details:
- customer's name,
- address,
- SIRET number,
- VAT number, etc.
4. Keep all receipts
It is essential to keep all proof of purchase. Your customer can only reimburse you for out-of-pocket expenses on presentation of the invoice and/or receipt.
Bear in mind, too, that you could potentially be audited by the tax authorities in the future.
5. Issue an invoice to the customer after the service has been rendered
Once the service has been rendered, you'll need to show disbursement costs separately when you invoice your customer. You should enclose a copy of the receipt.
The amount reimbursed for out-of-pocket expenses must be strictly equal to the amount you paid to advance the expenses. As we mentioned earlier, it is not possible to make a profit on out-of-pocket expenses.
Here's an example of a disbursement note:
Tools that make it easier to reimburse your expenses
There are a number of software programs that make it considerably easier to manage and reimburse your expense claims. There are many of them on the market, and they come in a variety of forms:
- Human Resources (HR) software,
- Estimating and invoicing software,
- Accounting software,
- Expense claim software.
They all offer the basic functionalities of expense claim management:
- Expense claim entry
- Receipt management
- Reimbursement request
- Reimbursement validation
- Payment management
- Expense archiving.
But there are also software packages that offer even more advanced, tailor-made functionalities.
The entrepreneur's expense account in a nutshell
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As a self-employed entrepreneur, you can't make expense claims and deduct them from your sales, as you already benefit from a flat-rate deduction.
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However, there is a way for you to be reimbursed for certain business expenses: out-of-pocket expenses.
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There are a few steps to follow in order to account for them:
- obtain the customer's written agreement,
- advance the amount from your business account,
- request an invoice in the customer's name,
- keep receipts,
- show disbursements on the final invoice.
- These are highly advantageous, as they enable you to obtain reimbursement of expenses incurred on your customer's behalf without inflating your sales. As a result, you pay fewer charges than if you had to invoice them in the traditional way.