Your Complete Guide to Contractor Expenses

Transcription

1 Your Complete Guide to Contractor Expenses We re Regulated so you re Protected.

2 Contractor Expenses an overview As a contractor operating through your own Limited Company, you are able to claim legitimate business expenses, providing HMRC would view the claim as an essential business expense incurred wholly and exclusively for the business. The expenses you are allowed to claim through your Limited Company are dependent on both the IR35 status of your contract and the 24 month rule. The 24 month rule The 24 month rule dictates that as soon as you become aware that you will be at the same client site for more than 2 years, it is not possible to claim for any personal expenses incurred with regard to subsistence and travel between your home and client site. You fall foul of this clause as soon as you sign a contract that would take you over the 2 year period. Therefore if you have worked at a client site for 8 months and then sign a contract for 18 months, you cannot claim any further personal expenses from the date that you sign that contract. General advice Freestyle always endeavours to act in our client s very best interests, which is why we check all expense receipts as part of the bookkeeping element of our service. If we feel that an expense would not be viewed as a legitimate claim, would not be tax deductible for any reason, or if additional supporting information would be helpful for a particular claim, we will advise you accordingly. It is best that you pay for expenses from your business account where possible; on occasion your company will be entitled to a tax deduction for an expense which would not be available when reimbursing you personally for the same expense. Training and accommodation are a few examples of such expenses. When making payments you should therefore endeavour to use your company debit card, company credit card, or a company cheque. We do not recommend that you draw cash out of the company to make any purchases. Cash withdrawals from a business account can be viewed by HMRC as either remuneration or a dividend and you may find it difficult to prove the money was used to benefit the business. Contractor Expenses an overview 2

3 Provided your contract is outside IR35 the following expenses can be claimed where applicable... Accommodation expenses If you are contracting away from home and it is necessary for you to arrange overnight accommodation, the cost is tax deductible. You are also able to claim 5 to cover personal incidental expenses for each night away in the UK and 10 per night if you are contracting overseas. Expenses incurred at the weekend Expenses incurred at the weekend can be claimed providing you are able to justify the claim. For example, a claim made for overnight accommodation on a Sunday evening is perfectly acceptable if the client requires you at the site early the next day and to travel from your home to the client on the Monday would be unfeasible. You may also claim if you are contracted to carry out duties over the weekend. Travel expenses (subject to the 24 month rule - see above) Train, bus, coach, taxi, tolls and parking costs incurred in relation to your contract may be claimed where applicable. Mileage (subject to the 24 month rule - see above) You are able to claim mileage costs for the travel incurred to and from your client site and any incidental mileage relating to your contracting or business duties, such as travelling to other client sites where necessary, or from your hotel to the client site. The HMRC approved amounts are as follows and apply to each individual tax year: Vehicle Types First 10,000 miles Above 10,000 Cars and vans 45p 25p Motorcycles 24p n/a Cycles 20p n/a Subsistence expenses Subsistence claims can be made if you have travelled in the course of business, and it can be demonstrated that it was necessary for you to purchase a meal and drink in the line of your contracting duties. Receipts will need to be supplied to support any purchases made. Whilst claims for hot beverages, soft drinks or water are acceptable, HMRC will only allow claims for alcoholic drinks if they are purchased with food, for example a claim submitted for an evening meal. Please also be aware that grocery bills are not acceptable to HMRC, unless of course the items being claimed reflect and relate to the purchase of a meal, rather than the ingredients for one. Accommodation, Mileage & Subsistence 3

4 Other business expenses Accountancy fees: are an allowable business expense, these claims are automatically included in our calculations and therefore you do not need to submit them via the web portal. Approved childcare schemes: childcare costs can be claimed providing you use a HMRC approved childcare scheme. Please click on the following link for more information and details of those schemes which are acceptable to HMRC help-with-childcare-costs/childcare-vouchers Bank charges and interest: incurred on your company account(s). Broadband: if your home broadband connection is listed in the name of your limited company and is used for business purposes. Business insurances: business contents and other business related insurances. Charitable Donations: The most beneficial way to make charitable donations is to pay the donations personally and keep a record of them. They can then be included on your personal tax return, which may save tax on dividends. Clothing: Case law dictates that clothes are worn for decency, and not to facilitate work. HMRC therefore govern that normal items of clothing such as suits, shirts etc are not specific to a contracting role or employment and consequently no tax relief should apply. The only exception is purchases made for specialised or protective clothing which is deemed essential to carry out the work involved. Computer/IT Equipment: this includes the purchase of a computer or laptop for business purposes; associated items such as ink cartridges, printers etc and repairs. Company Credit Card: most banks charge a nominal fee for this service. 30 per annum per card appears to be the norm but this will obviously vary from bank to bank. This is a business expense and is tax deductible. Company Secretary: Due to recent changes in legislation you are no longer obliged to have a company secretary. If you do choose to have a secretary you have the option of taking the role personally or you may prefer to nominate a relative or spouse to act. If you select a company secretary other than yourself and will be paying a salary, the amount paid must truly reflect the level of work involved and the same considerations outlined in the paragraph on Salary for spouse later in this guide will apply. Company Vehicles: Due to successive changes in legislation over recent years there is no longer any real benefit in purchasing or leasing company cars; in fact, it may actually increase your tax liability. Likewise any purchases for a vehicle via the business, such as tyres etc cannot be claimed as a business expense. Claiming mileage is generally far more cost effective. Other business expenses 4

5 Dry Cleaning: this relates directly to the rules on clothing. If the purchase of an item of clothing does not attract a tax deduction then neither will the cost of having it cleaned. However, if the item would attract a deduction, a laboratory coat for example, you would then be entitled to a tax deduction for any laundry costs incurred for that item. Entertaining Clients: It is not possible to claim a tax deduction for any form of client entertainment. This includes rewarding colleagues who you may contract with. The only entertainment that attracts a tax deduction is employee entertainment, such as a Christmas meal, up to a cost of 150 per employee per year. Misc: books and magazines where they are directly related to your contract work. Please contact us before claiming as certain expenses are not acceptable to HMRC. Expenses incurred whilst securing new contracts: Generally it is possible to claim for expenses incurred whilst securing new work or contracts, such as travel etc although you would need to demonstrate that there were no other purpose for the expenditure. For example, if you were claiming for flights to and from America, and were staying for 1 or 2 days to attend interviews, any claim for flights and accommodation would be deductible. However, if you intended to stay for 2 weeks it would be very hard to justify that all costs were incurred wholly in respect of business, with no personal element. Any personal element could result in the entire claim failing to qualify for a tax deduction. Please contact us to discuss these items before claiming. Mobile phones: if your mobile is primarily for business use, we strongly recommend that the mobile phone contract is taken out in the name of your company as all costs including monthly rental are tax deductible. If it is not practical for you to do this you should support any claims with itemised bills or a call log which should include the time, date and cost of each call. Pay as you go mobile phones Pay As You Go claims submitted for top up cards on mobile phones cannot be claimed unless they are supported by a call log. Pension scheme: contributions should be paid by the company to an HMRC approved scheme. Renting: if it is necessary for you to rent a property in order to carry out your contract, and you can demonstrate that it is cheaper to rent than to stay in a hotel or B&B, you may be able to offset your whole rent as an expense, including utility bills and council tax. If it is not cheaper you may still be able to claim a proportionate amount i.e. 5/7ths, depending on the number of nights you need to spend in the property for contract purposes. Please be aware that you will be unable to claim for the rental property if it is your only place of residence, or if you are staying in it by choice rather than necessity. Other business expenses 5

6 Salary: your gross salary, and that of any other employees, plus Employer s National Insurance. Salary for spouse (if applicable): the salary must be realistic, having regard to the duties being performed and should be paid to the employee s account. If your spouse is already employed there is unlikely to be any tax advantage in paying them a salary. Stationery: Business related stationery including business cards and postage costs. Subscriptions and Memberships: HMRC has issued a list of subscriptions and memberships it recognises and will therefore consider an acceptable claim. We will happily provide you with a copy of the list on request. Training: In order for HMRC to agree to allow tax relief on training costs you must be able to demonstrate that the training was wholly, exclusively and necessarily for business purposes, which may be difficult to prove. HMRC may challenge claims of this nature and we therefore recommend you contact us before making the claim. If you feel strongly that a claim is justifiable, please ensure that any receipts or invoices are issued to your company and not to you personally. We would also suggest that you detail your reasons for the training to support your claim. Use of home for business purposes: Freestyle will automatically apply the approved HMRC amount of 3 per week to your company. However, in some instances it may be possible to claim a higher amount but you should ensure that a lease agreement is in place between you and your limited company and be able to demonstrate that a room in your home is being solely used for business purposes between certain times of the day i.e. 9am to 5 pm. Website Design & Hosting: The costs of designing and hosting a website for your business are fully tax deductible. Should you require a good web design company that offers a specific service to contractors please visit Brand Box Marketing at Other business expenses 6

7 Caught by IR35? If your contract is caught by IR35 then you can only claim expenses incurred wholly, exclusively and necessarily in the performance of your contract work together with a 5% administration allowance. These are as follows: 5% administration allowance (5% of fees received) Pension contributions Certain professional subscriptions Allowable travel expenses Allowable subsistence We hope you have found this guide to expenses useful, however should you have any questions or queries after reading it, please do not hesitate to contact us on or via at tax@freestyleaccounting.com. We endeavour to act in your best interests at all times which is why we check the expense receipts as part of the bookkeeping element of our service and we will advise you accordingly with any recommendations we have. Caught by IR35? 7

8 Refer a Friend & Win 1 of 3 Top Prizes! Click here and recommend Freestyle to a friend or colleague and win 1 of 3 great prizes! Freestyle Accounting Ltd Tel: tax@freestyleaccounting.com Web: Freestyle House, 8 Mercia Business Village Coventry, CV4 8HX We re Regulated so you re Protected.