Working as a contractor means that certain expenses that you incur for your business can be claimed as limited company expenses.
Table of Contents
- What are allowable expenses for a contractor and limited company?
- What do we mean by tax deductible?
- 1. Business Mileage (personal car use).
- 2. Subsistence
- 3. Accommodation
- 4. Parking charges
- 5. Rail, bus, taxi and air travel expenses
- 6. Training & tuition
- 7. Employers NICs
- 8. Pension contributions
- 9. Stationery
- 10. Hardware and computers
- 11. Uniforms
- 12. Bank account charges
- 13. Insurance
- 14. Salaries
- 15. Professional fees
- 16. Broadband and telephone
- 17. Utilities
- 18. Child care
- 19. Entertainment costs
- 20. Life insurance
Some contractors work on the road, others work going from company to company to manage contacts or make sales.
Either way, when you work independently you will incur costs and you should be reimbursed for them.
Most contractors already understand that they should pay for these expenses with their own cash, then claim back on them later on via the company they are working for at the time.
What are allowable expenses for a contractor and limited company?
There are certain business expenses that are allowable for a contractor.
But it can be rather a minefield trying to figure out what you are actually able to claim legitimately as a business expense.
There are some ground rules when it comes to claiming expenses when you are working on a contract with a company, and here are some of those that you should know about before you go ahead:
Any expense claims should be incurred exclusively and necessarily in performing your business duties.
For example, you can claim expenses for your personal protective equipment while on assignment, as this is necessary to the business duties that you are performing.
Asking for a refund on a five course meal with caviar and lobster?
Not so necessary.
Travel and subsistence expenses usually have their own rules from contract to contract, but if you have been working on a specific contract for more than two years, you cannot claim for these.
Keep your receipts and expenses for 6 years
Any expense receipts that you do collect need to be filed correctly and kept for six years.
This is so that you have a paper trail of proof of your claims – just in case HMRC choose you at random to investigate.
Any expenses that you do claim for have to be paid to you directly from your company’s bank account.
Alternatively, you can reclaim legitimate business expenses paid by you personally and get them reimbursed to you later by your company.
Some of the expenses that you incur can be offset against the company’s Corporation Tax liability.
Although you should know that there are some exceptions to that rule, such as business entertainment expenses.
Back on 6th April 2016, there was a passing of new legislation that said that there are some business expenses that might not be payable if your contract comes under IR35 rules.
This can differ from assignment to assignment, so it’s always important to check with the company that you are contracting with.
Some of the expenses that may not be payable include the following:
- Subsistence (your food and drink)
- Accommodation costs
- Business mileage
When your contract work falls within the IR35 rules, you could be eligible to claim an allowance equal to 5% of the turnover of the contract you are working on.
This can cover your costs related to running your limited company.
What do we mean by tax deductible?
When referring to job-related expenses, or ‘tax-deductible’ expenses, it literally means what it says.
You can claim tax relief for the money that you’ve paid out and there are two ways that this applies:
- Your employer reimbursed your expenses listed but you were taxed on that reimbursement.
- You have paid your own expenses without reimbursement.
Having a tax-deductible expenses basically means that the tax that could normally have been charged on an item has been removed, though you didn’t get this item for free.
A list of 20 limited company expenses that a contractor or limited company can claim for:
1. Business Mileage (personal car use).
If you are using your own car for working an assignment and that assignment is outside of IR35 rules, you can claim 45p per mile for the first 10,000 business miles that you do in a year.
After those first 10,000, you can then claim 25p per mile.
Keep VAT receipts for fuel.
You can claim for tolls, tunnel fares and congestion charges, but not speeding fines, parking fines and fines you incur when clamped.
When you are working on a temporary location, you are allowed to claim reasonable expenses on meals and drinks – with valid receipts to support your claim.
This doesn’t include the five course meal mentioned earlier.
This one is a little complicated, because there is more than one category for claiming here:
- Hotels and B&Bs must have an original receipt
- If you are claiming rental costs as per an agreement with your company, the rental agreement that you have can be your proof of cost and has to be in the name of the business.
4. Parking charges
Keep every single receipt you get for parking.
A folder in the car can be a way to keep them organised, especially if you travel for work.
5. Rail, bus, taxi and air travel expenses
Original tickets and online receipts work as proof of expenses.
6. Training & tuition
As long as the training is wholly necessary to your job, you can claim it as an expense.
It also has to be related to your existing income.
You can also claim a reasonable amount for the cost of manuals and textbooks required in the course of your business.
7. Employers NICs
Employers NICs on salary that are above the current threshold.
8. Pension contributions
Pension contributions made by your company on your behalf are an allowable expense for you to claim.
Company stationery, printing, business cards and any other necessities that you need while you are working.
10. Hardware and computers
Hardware costs; equipment such as laptops, mobile phone, printer.
If you need it in your line of work, you can claim for it.
Some jobs require a particular uniform, and if you require one to carry out your job correctly, you should be able to claim tax relief on it.
12. Bank account charges
Standing monthly bank account charges
Professional Indemnity cover and other business-related insurances
Salaries of company employees, including your own
15. Professional fees
Any professional fees incurred while on the job, such as lawyer, accountant, website and hosting costs.
16. Broadband and telephone
You can claim for broadband and telephone costs, but only in the name of your company.
You get a flat £4 per week allowance for running your office in the home.
If you are contributing to your utilities bills, you can claim a percentage of those bills, too.
18. Child care
Child care costs can be claimed as a valid business expense.
19. Entertainment costs
Entertaining clients is part of your business, so it’s best to ensure you keep your receipts as you may be able to claim back some or all of those expenses there.
This cannot be offset on the company’s corporation tax bill.
20. Life insurance
Life insurance, as long as it’s a relative life policy, can be claimed by your company. This can make it cheaper for you to be covered.
The rules surrounding expense claims aren’t always easy to manage, and rather than find that you haven’t done your expenses correctly, it’s always better to ask for help first.
If you’re claiming the right expenses and even how to claim them, you can get in touch with Universal Accountancy.
Contact us today, and we can make your expenses easy to understand.Contact us