A Guide to Expenses

Business expenses are costs incurred “wholly, exclusively and necessarily” in the course of running your business. Claiming these costs means that no tax will be paid on the amount spent.

Almost every contractor will incur business expenses while running their company and many will incur a substantial amount – keeping accurate records and claiming expenses is one of the most important things a contractor can do to minimise their tax liabilities.

You will need to keep your receipts to prove your costs. It is a good idea to pay all business expenses through your company account or using your company debit or credit card – this makes it much easier to reconcile legitimate business costs. It is a good idea to get into the habit of logging your expenses weekly or monthly – you will thank yourself each VAT quarter and your accountant will be grateful too!

There are a couple of exceptions that you have to be aware of. There should be no dual purpose when claiming expenses, i.e. no mixed business and personal use, and some expenses are not allowable at all. In general, though, if you are outside IR35 then almost any cost necessary for the running of your business can be claimed.

So what Expenses can I claim?

The most common business expenses, with examples, are listed below:

  • Travel Expenses. All travel to a temporary place of work can be claimed as an expense. Mileage is claimed at 45p per mile (up to 10,000 miles; 25p per mile thereafter). Public transport can be claimed at the face value of the ticket. Parking costs, road tolls and the congestion charge are also allowable. However, you can’t claim for parking fines or speeding tickets – so drive safely!
    You also need to consider the 24 month rule – ask your Dolan Accountant for more information.
  • Accommodation. The cost of hotels or bed & breakfasts can be claimed as an expense, where necessary for your work. There is no limit on costs you can claim for accommodation, but the expense must be ‘reasonable’ in the eyes of HMRC. You can also claim for the cost of meals while staying away from home – as with the room itself, these must be deemed reasonable.
    You can also claim for overnight incidentals, if you have to stay away from home overnight, for work.
  • Meals and subsistence. Even if not staying overnight, you can claim some meal costs while working at a temporary workplace. Only actual meal costs can be claimed, so keep all receipts.
  • Pre-trading Expenses. Any costs incurred before the incorporation of your Limited Company can be claimed, as long as they would be allowable expenses if already trading. Typically these include travel to meet a client and equipment purchases.
  • Training and professional subscriptions. As long as the training, qualification or subscription are wholly and exclusively relevant to the operation of your business or the services you provide, it can be claimed as an expense.
    For training to be allowable it must be for an advancement of skills you already have and not for the acquisition of new ones. 
  • Clothing. Protective clothing, or clothing necessary to carry out a contract – such as a branded uniform – is an allowable expense. Anything considered part of an ‘everyday’ work wardrobe or with dual purpose isn’t allowable – unfortunately, you can’t claim a new suit!
  • Insurance. The most common types of insurance required by contractors are professional indemnity and public liability insurance, but do check your contract to see what you are required to have.

Above is just a small list of expenses that most contractors can claim via their Limited Company. For a more comprehensive list, contact your Dolan Accountant.

Still unsure what you could be claiming?

Speak to Sophie on 01442 795100 or email sophie.lewis@dolanaccountancy.com

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Wait – I’m inside IR35!

Unfortunately, if your contract is caught by IR35, allowable expenses are far more restrictive. You can use up to 5% of your contract income for administration expenses, accountancy fees, computer costs etc. You can also reduce your deemed salary with pension contributions, childcare vouchers and professional insurances.

What do Expenses actually do to my tax bill?

In simplified terms, expenses reduce your company profit, which in turn reduces your Corporation Tax liability.

If you were to earn £8,000 in a month, without claiming any expenses, then the full £8,000 would be taken into consideration when calculating your tax liability.

However, if you also incurred £2,000 in legitimate expenses, only £6,000 would be taken into consideration for your tax calculations.

This explanation does not take into account the different ways your income is managed and tax is calculated when operating through a Limited Company, but should give you an idea of how they work. If you would like more detailed information on how expenses affect your tax liability, give us a call and speak to your accountant.

What happens if I claim Expenses that I can’t prove?

If HMRC were to investigate your personal circumstances, they will ask to see receipts for all expenses claimed. If you were unable to provide receipts for certain expenses, those expenses would be disallowed and the tax saving repaid. In order to stay on the right side of the taxman, never claim an expense you cannot support and always keep your receipts!

If you have any questions or would like further information, please call us on 01442 795100 or email sophie.lewis@dolanaccountancy.com.

Whats next…

Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, ContractorUmbrella, it means we can offer one low cost, fixed fee package at £95 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of ContractorUmbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, ContractorUmbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use CashPlus free of charge for the first year, saving you £69.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

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