There are now more people than ever before choosing the contracting lifestyle and with the numerous benefits that come hand-in-hand with this way of working, it’s no surprise to see why.
As someone who is self-employed you will have the type of freedom and flexibility that a permanent worker can only dream of, plus there is also the fact that you could potentially earn more than a ‘traditional’ employee who is in the same role.
Another benefit is that contractors are able to claim back purchases that are made for the running of their business, which in turn will reduce their tax bill at the end of each year.
Typical contractor expenses
If you contract as a Sole Trader or through an Umbrella company you won’t be eligible for as many expenses as a Limited Company, making this the most tax efficient method of contracting.
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)
There is also the fact that if you work from home, it may be possible for you to claim an allowance to cover the costs for things like heating, electricity, internet and telephone use.
It is important to be aware 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.
At the end of each tax year you will need to add up all of your allowable expenses and factor them into your accounts and tax return.
As mentioned previously, travel costs are one of the most common types of expenses that contractors can claim back on. This is extremely useful, as many contractors can find that they spend quite a bit of time and money travelling to clients and customers.
For cars and goods vehicles, you are able to claim 45p per mile for the first 10,000 miles. This will then go down to 25p per mile once you reach over 10,000 miles.
Just ensure that you make a note of the date of the journey with its start and end location, the reason for the journey and the number of miles.
Travelling on business
If you have to work in a place that is temporary and not your usual base, you will be able to claim back on any subsistence and accommodation – as long as it is seen as being reasonable and not ‘excessive’.
Business journey expenses can include:
- Hotel accommodation
- Food and drink (excluding alcohol)
- Any public transport costs
- Congestion charges and tolls
- Parking fees
There is also the option to stay in rented accommodation instead of a costly hotel, if you know that you would need to be in a different area for work for a longer period of time.
In this case there are of course rules that will determine whether this is in fact an allowable expense.
For example, the property lease should be taken out in the company name with payment coming out of the company’s bank account.
The rental accommodation must only be used for work, otherwise you cannot claim the full cost of rent.
If the standard of location is particularly high (excessive) or your family are staying with you in the property, then this will not be an allowable expense.