What expenses can I claim as a Contractor working through my own limited company?
HM Revenue and Customs have produced a heavyweight 100-page guide called: '2007 Expenses and benefits - A tax guide'. However, if you don’t have the time to read this epic, find below SJD’s handy guide.
If you’re a contractor working through your own limited company and are outside IR35 then life is very simple. HM Revenue and Customs rules state that expenses can be claimed provided they are wholly and exclusively for the purposes of your business. This means you can claim things like company formation fees, accountancy fees, business travel and accommodation, postage, stationery, telephone calls, employer’s N.I. contributions, subscriptions, insurance, contributions to an executive pension plan, business entertainment etc.
What is a valid business expense?
You can claim actual meal costs whilst you are working at a remote site, away from your normal place of work, or when staying away from home overnight, but daily, round sum claims for meals are not permitted.
You can claim the cost of travel to and from your temporary place of work. Mileage rates are 40p per mile for the first 10,000 miles in any fiscal year and then 25p per mile thereafter. This allowance is to cover fuel and running costs of the vehicle. If you are travelling to work as a passenger in a car you are entitled to claim 5p per mile. You can also claim for parking and the congestion charges but you may not claim for parking fines or speeding fines. The cost of travel by public transport can be claimed but you must have a valid receipt. A mileage allowance can also be claimed for travel by motorcycle and bicycle at rates of 24p per mile and 20p per mile respectively.
The cost of hotel or bed and breakfast accommodation can be claimed as an expense, as can the reasonable cost of additional meals taken in conjunction with overnight accommodation. There are no set allowances for accommodation but the cost must be deemed to be 'reasonable'; this also applies to the cost of meals.
You cannot claim for ordinary clothing which would form part of an 'every day' wardrobe even if you would not be likely to wear your working clothes anywhere other than at work.
Providing the training course is wholly and totally relevant to the performance of your duties under your existing contract then you can claim this as an expense
Pensions are big news as they represent one of the few remaining tax breaks available to contractors. You can invest part of your income into a Company pension scheme. You save not only the income tax that would ordinarily be payable but due to the pension contribution, your employers and employees national insurance contributions are lower than they would have been. The amount of tax relief can be as much as 48% meaning that for each £100 invested you pay £52 and the tax man pays the rest.
What if I’m inside IR35, what expenses can I claim?
If your contract is caught by IR35 then the only expenses claimable are administration expenses which are fixed at 5% of your contract income, travel and accommodation expenses, pension contributions and certain professional subscriptions. You should, however, still record and receipt all business expenses.
Do I need to keep my receipts?
It is advisable to hold onto your receipts because although your accountant will not need to see them, the HMRC if they choose to investigate, can go back as far as six years
One final word, remember you cannot claim for something you didn’t actually pay for in the first place, or can’t provide evidence that you did. You will be personally liable for any underpaid taxes NOT the company you're working through or taking advice from. You should, therefore, steer clear of companies and scheme providers promoting generous expense allowances with 'NO' receipts required.