With the contracting sector continuing to grow in popularity, it is no surprise to see why, when you consider the numerous benefits that come hand-in-hand with the self-employed lifestyle.
As a contractor you are able to have a lot more control over your career, as well as increased freedom and flexibility. There is the fact that you can potentially earn more than a permanent employee working in the same role and you are able to claim back expenses that are made for the running of your business, which will reduce your tax bill at the end of each year.
Not every contractor will be able to claim back the same expenses, for example, someone who works through their own limited company (as opposed to working as a sole trader or through an umbrella company) will find that this method is a lot more tax efficient, as you are able to claim back a much wider range of expenses.
For 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.
At the end of each tax year you will need to add up all of your allowable expenses and put the total amount in your accounts and on your tax return.
The most common types of contractor expenses includes:
- Your company’s commercial rent, heating and lighting
- Computers and software
- Accountancy fees
- Advertising or marketing costs (such as a website)
Claiming for a Christmas Party
Many limited company contractors may not be aware that a Christmas/annual party is an allowable expense, which is great news for everyone involved – and being able to treat your employees to an event such as this is brilliant for keeping morale up!
There isn’t a specific ‘Christmas party’ expense as such, just one that covers any annual event. In fact you can have more than one, just as long as you stick to the rules, such as ensuring you keep the figure for each person at a certain amount between all events.
As an employer providing social functions and parties for your staff, you do have certain National Insurance and reporting obligations.
What you need to report and pay will all depend on:
- If it is an annual event
- If it is open to all employees
- If it costs more than £150 per head
- How many events you provide during the tax year
- Whether the employee is a director and how much they earn.
However, you might not have to report anything to HMRC or pay tax and National Insurance – in order to be exempt, the event must adhere to all of these rules:
- You can only spend £150 or less per head per year
- It is an annual event (such as a Christmas party, or even a summer BBQ)
- Every member of staff must be invited
If you do have multiple annual events, you will need to ensure that the combined cost is no more than £150 per person and if your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend at least one of them.
If it turns out that any of the events that you do provide your staff are not exempt, then you will need to report the costs to HMRC and therefore pay National Insurance on them.
If you have any questions about what you can and can’t claim, or about making the move to Dolan Accountancy, please call 0114 795 100 or email firstname.lastname@example.org.