Contractor Expenses

Claimable expenses and tax

One of the biggest advantages to running a limited company is the ability to put expenses through the business and reduce the tax you have to pay.

But, how does that actually work? Well, let’s show you a practical example:

Let’s say you earn £10,000 per month on a contract. If you have no expenses in the month and withdraw all £10,000 you have to pay tax on the full £10,000. However, if you have £2,000 in expenses you now only have to pay tax on £8,000. As a higher rate taxpayer that equates to £800+ saving in tax for the month.

The above example is very simplified and doesn’t take account of PAYE salary, dividends or VAT. But, it does give you an idea of the benefit of putting expenses through the company.

So, having seen the effect of expenses on my tax bill what expenses can I claim for the business?

You can claim back expenses they have incurred during their business duties. The golden rule for all allowable expenses is that you can only claim for expenses you incur wholly and exclusively for the use of business! 

One further general point on claiming expenses – it is advisable to keep receipts and HMRC can ask to see them going back as far as six years. Though, with our online system and new iPhone application for capturing expenses on the go we make it easy to keep track.

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Professional fees & insurance

You can claim for professional services such as legal and accounting services. Obviously, the fees for My Accountant Friend’s services represent fantastic the best value for you as a contractor! We will save you thousands in tax for a very little, small, tiny fee!

With regard to insurance (e.g. PI, public public liability) - As a general rule if you can get your business name on the cover of the insurance its probably allowable. Any personal insurance will not be allowable so get your spouse to pay for that and save your money for more important things!

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Computers, laptops, other equipment

No company can trade without a computer. PC, Macs, Laptops and Sinclair Spectrum Plus are all allowable, if used for business. Please do not try to put your new 3D TV through if you use it to watch the football, unless of course, you are John Motson or Gary Linekar.

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Business communications (business calls, mobile & broadband)

Whether you use your landline, mobile or internet to communicate with your ‘clients’ they are all allowable costs.

This does not mean you can call Aunty Betty in Australia for a good natter then put the cost through the company, unless of course she is a ‘client’ ;-)

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Travel, accommodation, meals & subsistence

Travel - Off on holiday? Then NO, you can’t put the cost through the company! However traveling abroad or staying overnight in the UK for business, all travel and hotel costs is allowable.

You can claim the cost of travel to and from your temporary place of work. Mileage rates are 40p per mile for the first 10,000 miles and then 25p per mile thereafter. This allowance is to cover fuel and running costs of the vehicle. If you are traveling as a passenger in a car you are entitled to claim 5p per mile.

You can also claim for parking and the congestion charges but you may not claim for parking fines or speeding fines. The cost of travel by public transport can be claimed but you must have a valid receipt.

A mileage allowance can also be claimed for travel by motorcycle and bicycle at rates of 24p per mile and 20p per mile respectively.

Please note: travel is only allowable if you’re traveling to a temporary place of work. In the HMRC’s view this changes to permanent after 24 months of working there, so be careful!!

Hotel accommodation - this can be claimed as an expense, as can the reasonable cost of additional meals taken in conjunction with overnight accommodation.

There are no set allowances for accommodation but the cost must be deemed to be 'reasonable'; this also applies to the cost of meals. So, try to avoid the penthouse suite or that extravagant ‘rare’ bottle of wine over dinner. Unless, we’re invited!!

Meals and subsistence – You can claim actual meal costs whilst you are working at a remote site, away from your normal place of work, or when staying away from home overnight.  But, everyday meals are not permitted.

One HMRC rule on this is the 40% rule. If you travel to the same place of work more than 40% of the week, then lunches are NOT allowable. If you travel to several different places of work then lunches are allowable.

So just because the rather large guy sitting next to you is tucking into a 5 course lunch because its ‘on expenses’ doesn’t mean you can!

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Pension contributions – It’s always good to save for the long term especially when it saves your company tax now. With this in mind it’s a good idea to invest part of your income into a Company pension scheme.

You save the income tax that would be payable and your pension contribution reduces your employers and employees national insurance contributions. The amount of tax relief can be as much as 48% meaning that for each £100 invested you pay £52 and the tax man pays the rest.

Having set up a personal pension you can take that with you wherever you go (well almost anywhere), even when your Limited Company has stopped trading.

My Accountant Friend works with St. James’s Place Partnership a leading provider of pensions, savings and other financial products. Click here for more.

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Training, subscriptions, postage & stationary

Training – You can claim for training providing it is wholly and totally relevant to the performance of your duties under your existing contract. Your existing contract and role is key.

So, if you’re an IT contractor and always wanted to become a scuba diver you can’t claim for your diving qualifications. Sorry!

Subscriptions to professional magazines – No not that kind of magazine! We mean professional magazines that keep you up to date with latest professional developments, trends and technologies – which you can claim for.

What else are you going to do on a Friday night?

Cost of postage & stationary – You can claim for postage and stationary costs. It’s hard to think of something witty to say about post and stationary so here’s a joke:

A lady bought a stamp at the post office and asked the clerk, "Shall I stick it on myself?" The clerk replied, "It'll get there faster if you stick it on the envelope."

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