Minimising tax and maximising your take home pay
Understanding what expenses can be claimed through your Limited Company can ensure you minimise the tax you pay and leads to more money in your pocket at the end of the year! It is important to make the distinction between those expenses that are legitimate and those where you are pushing your luck however. We are always on hand to answer your questions on expenses and to proactively suggest ways in which you can lower your tax bill by claiming legitimate expenses. Remember to keep all of your receipts for expenses incurred.
We have compiled a list of the typical expenses that a contractor may incur below.
Use of a private car
Our monthly accounting spreadsheet features a mileage log for you to record business journeys in a private car, bicycle or motorbike. A claim is calculated for you based on the HMRC Approved mileage rates at the time.
You can claim the cost of other business related travel, which could include:
- Air fares
- Congestion charges
Travel expenses are only allowable when travelling to a temporary workplace. If you expect to be at a location for more than 2 years it ceases to be a temporary workplace and you should stop claiming travel expenses. If you think this may apply to you please contact us for more detailed guidance and advice.
You can claim the reasonable cost of temporary accommodation when working away from home
(e.g. hotel, B&B, rented accommodation). This must be reasonable (so no £1,000 per night spa hotels) and you must continue to have a permanent residence elsewhere.
You can also claim a daily incidentals allowance of £5 (£10 if working abroad) to cover the cost of laundry, newspapers, telephone calls etc.
Food and drink
When you are working at a temporary location, you can claim the costs of food and drink (subsistence). You can claim a reasonable amount for the cost, depending on the amount of time you spend travelling and working.
From April 2016, the rules around benchmark scale rates meant that for one-man and small companies, there were a number of conditions that had to be met including independent verification of expenses.
Therefore it’s now much easier to claim the receipted amount as an expense. As HMRC would expect to see receipts for any claims if requested so, as with any other business expense, you should keep hold of your receipts.
Use of home as an office
As a contractor your permanent workplace is likely to be your home address and you can claim an allowance for using your own home as your office. How much you can claim depends on how much you work from home. We would recommend the HMRC allowance of £4 per week, however if you work from home for more than 50 hours per month please contact us to see if you may be able to claim more than this.
Your monthly accountancy fee is an allowable expense.
If you have a personal mobile phone then you can claim only the cost of the business calls identified however if you are looking to buy a new mobile phone then it is worth considering getting the contract in your Company’s name as the whole cost would be allowable for tax (regardless of if there is any personal use).
A separate internet line is an allowable expense providing the contract is in the Company’s name and required for business purposes.
Your limited Company can provide you with childcare vouchers to use at registered childcare providers.
The cost of this is tax deductible at the following limits:
Basic rate tax payer – £243 per month per employee
Higher rate tax payer – £124 per month per employee
Additional rate tax payer – £97 per month per employee
In order to take advantage of this you can sign up with a voucher scheme provider like Edenred or Kiddivouchers. You do not need to operate salary sacrifice. Dividends are not taken into account when determining your rate of tax.
The cost of updating or enhancing an existing skill is an allowable expense however training in a completely new skill is not. For example an update course in a new version of a programming language would be an allowable expense for a Computer programmer however training to be a driving instructor would not.
Donations made to a registered charity are generally allowable providing it does not cause the Company to make a loss.
You can claim the reasonable cost of entertaining clients through your company however they are not tax deductible.
The cost of an annual event (e.g. summer BBQ or Christmas party) is allowable up to the cost of £150 (including VAT) per employee plus an additional £150 for directors. Be careful however, as if you spend above £150 per head the whole cost becomes disallowable.
Professional Indemnity, Employers Liability and Public Liability Insurance
By law all employers must have Employers Liability insurance and many agencies require Professional Indemnity insurance. These are all allowable expenses for your Company.
Pension contributions made to Directors and Employees from a company scheme are an allowable expense. There are limits to what an employee can receive in the way of pension contributions each year and we would advise you speak to a Financial Advisor if you are considering pension contributions.
You can claim the cost of computer equipment purchased for the purpose of your business. This is fully tax deductible providing any personal use is incidental. Input VAT can be claimed back even if you are using the Flat Rate VAT scheme purchases over £2,000 for computer equipment (and other capital assets).
Companies are allowed to provide their employees with ‘trivial’ benefits without a tax charge provided they are below £50 and are not in the form of cash (or a cash voucher that can be redeemed for cash). For directors, there is an annual limit of £300 for trivial benefits. The exemption is intended to cover benefits such as a bottle of wine on an employee’s birthday.
Other expenses that may be claimed include:
- Marketing and advertising expenses
- Website design, maintenance and hosting
- Sub-contractor costs
- Books, journals and magazines related to your trade
- Postage and stationery
- Computer software
- Certain professional subscriptions