When it comes to contracting, there are a number of benefits that come hand-in-hand with this way of working.
One of the biggest advantages is that you are able to claim back on a wide range of expenses, which in turn will reduce your tax bill at the end of the year.
Typical contractor expenses includes:
- Accountancy fees
- Any office items, such as stationery, software and computers
- Business mobile phone bills
- The rent of a commercial office used by your company
It is important to note that with any expenses you wish to claim, you will need to keep hold of receipts for proof of these purchases, for a minimum of 6 years.
Your accountant will also be able to give you further advice on what counts as a legitimate expense for you, as what you can claim back on will depend entirely on your method of contracting i.e. Sole Trader, Limited or Umbrella Company.
What is the 24 month rule?
The 24 month rule comes under the travel section of expenses and is designed to provide tax relief for contractors having to travel to a place of work that is not their permanent base.
The key word when it comes to this legislation is ‘temporary’ – the place of work the contractor is travelling to must be considered temporary, which is where the 24 month rule comes into place.
If the contract with the client is expected to run for less than 24 months, then this is deemed a temporary place of work. The same applies if the length of the contract is uncertain and so when you reach the two year mark with the contract, any time spent there after cannot be claimed for.
If you sign up to a contract and you are aware that it will last longer than 24 months, you will not be eligible to make any claim at all for the travel and subsistence it will cost you while carrying out this contract.