There are a number of benefits to trading through a limited company, higher take home pay and reduced personal liability are just a couple. However, another reason why starting a limited company can be a good decision is that compared to other structures there is a wider range of expenses that you claim.
At Contractor Accountants Online, we offer proactive tax advice and ensure that our clients are always claiming for all allowable expenses so that they are working in the most tax efficient way possible. This is exactly why we have decided to put together this comprehensive, yet jargon-free guide to limited company expenses.
A good place to start is to define what is classed as an expense. Essentially, an expense is anything that is wholly, necessarily and exclusively for the purposes of your business. Your expenses can then be offset against your company’s turnover to reduce your tax bill.
The thing that you need to bear in mind at all times is that for an expense to be valid, it needs to be for the purposes of your business. As an example, if you need to go out and buy a suit for a wedding at the weekend, you can’t claim it as an expense as it isn’t wholly, necessarily and exclusively for your business.
You can also claim for expenses that are considered dual purpose. Let’s say that you purchase a new laptop and you will use it 50% for personal and 50% for work purposes. You could claim 50% of the cost of the laptop as an expense.
It is essential that you keep a record of all your expenses and any receipts or invoices to prove that the claim is legitimate.
Each business is different so what is a relevant expense for you may not be the same for someone else. Featured below are some common expenses that many contractors make.
It is becoming increasingly common for contractors to work from home, particularly if they are in an industry that allows them to do so. The question is, can you claim for a home office? In short, yes, but there are a few guidelines.
Essentially, you’ll be able to claim for the additional household expenses that you incur as a result of working from home. In most situations this will include:
As of April 2012 you only need to provide HMRC with evidence of home office expenses that are in excess of £4 per week.
As a contractor, the chances are that you won’t be based in the same location every day of the week. If you find yourself travelling to different business premises as a result of your work you’ll be able to claim travel as an expense if you are using your own vehicle.
You can claim 45p for the first 10,000 miles in a tax year and then 25 per mile thereafter. Just remember to keep hold of those petrol receipts!
If you aren’t using a car to get around, you can also claim back the cost of public transport.
Sometimes you might be required to stay overnight near a client if you have had to travel a great distance. In such situations you can claim the cost of your accommodation as an expense.
HMRC just ask that the cost be deemed “reasonable,” so if you decide to check-in to a £1,000 per night hotel, you might struggle to justify the expense to HMRC.
If you are working on a remote site that is away from your usual place of work or if you are staying overnight for business purposes, you can claim the cost of your meal as an expense.
As with accommodation, HMRC just ask that you keep the costs reasonable.
Insurance isn’t always a legal requirement if you are a single person limited company, but it is well worth considering just to for your own piece of mind.
As long as the insurance is for the purposes of the business, you can claim the full cost as an expense. Therefore, if you were to take at personal health insurance, that couldn’t be claimed, but things like public liability and professional indemnity would be allowed.
Being able to constantly develop your skills so that you can remain an expert is extremely important, especially if you are in an ever-evolving sector, like IT. As long as the training course that you undertake is directly relevant to the services you provide, you can claim the cost of it as an expense.
If you are an IT Contractor and wanted to do a sales and marketing course, this isn’t directly related to your work so couldn’t be claimed as an expense. Should you be unclear as to whether or not your latest course is a valid expense, get clarification from your accountant.
If you have any questions about the life of a contractor or would like to find out more about how we can help, call our friendly experts on 020 7481 4743.