Contractor Business Expenses
As a contractor working through your own limited company, there are expenses you incur in the course of running your business. It’s important to claim as many of these back as you can, so you’re not left out of pocket.
But it’s a complex area, prone to abuse. HMRC keep a keen eye on businesses taking advantage. Before reclaiming any expenses, it’s important to take advice on what is and what’s not an allowable expense.
The key thing to remember is that an expense can only be reclaimed if it was incurred exclusively for business purposes. And remember: it’s ultimately the company that will be setting the expense off against its corporation tax bill, so the expense you incur has to be a valid expense for your company.
Use of home as an office
The amount you can claim will depend on how much you use your home as a place to run your business. If it’s purely for occasional admin tasks and there’s no separate room set aside as an office, you can take advantage of the weekly allowance of £4. You do not have to keep any records to show actual costs. The amount is entered as an allowable expense for the company.
If you use your home for actual fee-earning, you can claim more than the £4 weekly allowance, as it’s likely you’ll have a separate space set aside for use as an office. You calculate the allowable expense as a proportion of total household bills, based on the floor-space of the office and the number of hours it’s actually in use as an office.
Travel, accommodation and subsistence
- Travel between home and workplace – you can’t reclaim any expenses for travelling between your home and your customer’s site, unless this is a ‘temporary’ workplace.
- Travel between home and a temporary workplace – if the contract between your company and the customer is for less than 24 months, the customer’s site is considered a temporary workplace, and you can reclaim your travel expenses in getting to and from work each day.
- Travel between workplaces – if you’re travelling between different customer sites, the expenses for these journeys are allowable.
What travel expenses can I reclaim?
You can reclaim:
- Mileage allowance
- Train fares, flights, taxis, buses
- Parking (but not fines)
- Congestion charge
You can also claim for ‘subsistence’ expenses, such as:
- Overnight hotel accommodation, plus breakfast and an evening meal
- Temporary rented accommodation, if you need to stay away for regular extended periods.
All these expenses must be reasonable. For instance, we would recommend spending no more than £25 on an evening meal (you can also claim £5 per night incidental expenses without providing receipts).
How does reclaiming mileage work?
If you’re using your own car, you can reclaim from the company the cost of the fuel you use on business (not personal) travel and an amount for wear and tear. This figure is then deductible as an expense in the company. We can advise you further on the rates recommended by HMRC. As an example, if you travel less than 10,000 miles per year, you can claim 45p per mile.
If the company provides the car, you can claim the cost of fuel – between 15p and 26p for petrol and 12p to 18p for diesel. The company includes this, as well as its costs in running the car, as deductible expenses.
Should I get a company car?
It may well be more tax efficient for your company to own the car you use and reclaim the expenses in running it (insurance, road tax, service and repairs), than you using your own car for business travel and claiming mileage and wear and tear.
It really depends on how much you are likely to use a car for business purposes.
The disadvantage of using a company car is that you’re taxed as receiving a benefit in kind, because inevitably you get personal enjoyment from the car.
The taxable value to you is based on engine size and CO2 emissions. Generally, a figure based on 15-35% of the list price will be added to your personal income tax bill each year.
We can advise what’s best for you.
Other allowable expenses
If an expense is incurred solely for business purposes, it can usually be reclaimed. This includes core company costs, such as salary payments and pension contributions, as well as expenses incurred by you as an employee of the company, which are then set off against the company’s corporation tax bill.
But there are many qualifying conditions – it’s dangerous to rely on a list. And if you’re benefiting personally from an expense, you’ll be taxed as receiving a benefit in kind, which will increase your personal tax bill.
Please contact us to find out how we can help you make sure you’re being as tax-efficient as possible in the management of your expenses.