As a director of your own limited company you are entitled to claim expenses that you incur whilst on assignment. Typically you will pay for these costs personally and be reimbursed by the company.
3 Golden Rules
How Expenses Work
Expenses aren’t taxed, so if you invoiced for £10,000 a month and you didn’t have any expenses, you would pay corporation tax on the full £10,000.
However, if you had £2,000 of expenses, you would now only pay corporation tax on £8,000. Your PAYE salary, dividends or even the flat rate VAT scheme can effect this calculation further but hopefully it will give you a basic understanding of how important claiming the correct expenses is to reducing your tax liability.
There are typically two types of expenses which are treated differently:
These are expenses which you have agreed will be refunded to you by your client. An example might be your client reimbursing you for accommodation you have had to pay for in order to fulfil your assignment. These are claimed via your agency and will be paid to your Company in addition to your hours. They should be claimed at the same time as you submit your timesheets and be added to the invoice to your client. It is always a good idea to ask your client which, if any, expenses are going to be reimbursed when accepting any contract.
These are expenses which you are entitled to claim as a result of your employment with your Company while working at a temporary workplace. These you are not reimbursed as cash but will reduce the corporation tax liability of your Company.
Keeping a Record of Expenses
It is vitally important that you keep accurate records of any expenses that you incur. You should ensure that you log any expenses, record the type of expense and keep the receipt (where applicable) on file.
This is where your online portal from Compact Accounts comes in handy. There is no need to download an app, just login on your phone, tablet or laptop and our portal will optimise to whichever device you are using.
What expenses can I claim as a Contractor working through my own limited company?
HM Revenue and Customs have produced a heavyweight 100 page guide called: ‘Expenses and benefits – A tax guide’. However, if you don’t have the time to read this, please see below for our handy guide.
HMRC rules state that expenses can be claimed provided they are wholly, exclusively and necessarily for the purposes of your business. This means you can claim things like:
accountancy fees, business travel and accommodation, postage, stationery, telephone calls, employer’s N.I. contributions, subscriptions, insurance, contributions to a pension plan, business entertainment etc.
If you are unsure if an item or service can be classed as expenses then please contact your Compact Accountant before making the purchase.
Mileage can be claimed for all business related travel, where you are obliged to travel to and from your temporary place of work and use your own vehicle. We advise paying for fuel from your personal account and claiming the mileage rates as per the Revenue approved rates below via our portal.
Public transport costs, tolls, congestion charges and parking fees are also claimable. Remember to retain all receipts including fuel receipts.
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 daily, round sum claims for meals are not permitted.
The cost of hotel or bed and breakfast accommodation 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.
The accommodation cost (including gas, electricity, council tax etc.) can be claimed subject to you maintaining a property elsewhere. You must maintain at least two properties one of which is kept solely for the purposes of your work. A rental agreement or letter from your landlord should be retained as evidence as well as receipts for the payment of rent and financial responsibilities (e.g., utility bill, council tax bill etc.).
Office consumables, postage and stationery
Provided they are incurred for business purposes and receipts are retained, these are an allowable expense. A receipt/invoice must be retained.
Professional subscriptions can be reclaimed providing: they are included on HMRC’s list of approved bodies and societies (www.hmrc.gov.uk/list3/list3.pdf>) and membership is required for the types of assignments you will undertake. A receipt/invoice must be retained.
Training courses and tuition
These are claimable providing they are designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which are likely to prove useful to you when performing your duties. A receipt/invoice must be retained.
Tools and equipment
If you need to purchase tools, safety equipment/wear or other equipment that is essential to your assignment, such costs are reclaimable.
We would advise speaking to your accountant before making any purchases and all receipts must be retained.
If you work from home, as in you use a room in your home for business purposes you can claim for ‘home as office’ expenses.
You will be able to claim back £4.00 a week, £18 per month or £208 a year towards household expenses. No records need to be kept to claim back this allowance. This £4.00 is towards the extra cost of gas and electricity to heat and light you work area etc.
You can claim over £208 in a year however you need evidence of why you are. This can be provided by estimating what percentage of your property the room you use is and the time you use it. You can then add up the cost of your rent, mortgage interest, gas, electricity, water, cleaning costs, council tax, home and contents insurance and telephone line standing charge.
We would advise drawing up a floor plan of your home to show what area is used solely for business. This allows you to accurately proportion the space that is used.
For example if this total is £1,000 a month and your room is 10% of your house. Then that room is worth £100 a month and then you use it for work 50% of the time you can claim back £50 per month.
Remember as a Compact Customer you can give us a call on 0333 3202 394 if you are unsure about what you can claim or how to record this information.
Here at Compact Accounts we have made it our aim to take the weight off of your shoulders when it comes to Accounting and Taxation Services.
We offer a wide range of services to fit your business needs and all at highly competitive prices.
Our knowledgeable staff are here to provide you a professional and efficient service so you can rest assured that your payroll and taxation is being managed by the experts.
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