Limited Company Expenses Guide

Almost every limited company 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.

Limited company contractor expenses what you could 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 Dolan Accountancy on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.

Claiming limited company expenses when working 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 for a minimum of 6 years.

If you have any questions or would like further information, please call us on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.