A significant advantage of being a limited company contractor is the enhanced ability to claim tax relief on business expenses. Here we answer the question: “What expenses can a limited company contractor can claim?”
Claiming expenses correctly reduces your profit, which in turn keeps your Corporation Tax down. Knowing what constitutes an allowable business expense will ensure you run your limited company in a tax efficient way whilst remaining compliant with HMRC’s rules.
HMRC’s general guidance states that expenses you claim through your limited company must be ‘wholly and exclusively’ for the business. This is straight-forward guidance which should be simple to follow. However, limited company contracting presents a bit of a challenge – it may be that you work from home and that you use broadband and phone lines for both business and personal use, for example. Read on to find out what business expenses you can claim, and how to keep accurate records.
Limited Company Expenses
|Business expense||What you can claim for|
|Accountancy fees||You can claim tax relief on your limited company's accountancy fees. This includes the costs associated with setting up your limited company as well as ongoing accountancy costs.|
|Accommodation costs||You can claim tax relief on the cost of accommodation when you travel to a temporary business-related location, though this cost must be considered 'reasonable'.|
|Entertainment||You cannot claim tax relief on business entertainment or gifts though you can claim for a Christmas party or staff event for employees. Employees may invite a partner but the expenditure must not exceed £150 inc VAT per person. For example, expenses for a Director and guest at a cost of £300 (but no more) would be acceptable. There are special rules for when costs exceed £150 per person – speak to us for more details.|
|Equipment||You can claim tax relief on the cost of equipment you need to perform your work including computers, phones and furniture such as desks and chairs. As long as personal need is ‘insignificant’ HMRC will not treat it as benefit in kind which has different tax implications.|
|Stationery||Postage, printer ink, paper and pens can all be claimed.|
|Travel expenses||You can claim travel expenses as long as you can show that the travel is necessary for your work and that it is not ‘ordinary commuting’ between your home and a permanent workplace. Travel expenses can include vehicle insurance, fuel, parking, tolls, fares for trains, buses, planes and taxis. Please note that travel expenses should be ‘reasonable’.|
|Food and drink||You can also claim for food and drink when out and about on business. HMRC’s rules state that lunch can be claimed if you’re out for 5 hours or more, and dinner if you’re out for 10 hours or more. If you have to stay overnight for work purposes, you can claim for hotel rooms and meals.|
|Eyesight tests||You can claim for eyesight tests as long as you can prove it’s necessary for the use of visual display equipment for your work.|
|Medical insurance||The cost of medical insurance would be considered as a ‘benefit in kind’ and subject to different tax rules. Your company can, however, claim tax relief on medical insurance for an employee working abroad and for an annual check-up|
|Salaries and National Insurance||Salaries paid to employees or Directors are allowable expenses, as are National Insurance Contributions. Again though, these can be challenged if unreasonable – which would normally mean uncommercial.|
|Home office||You can claim £4 a week for using your home office if you can prove that you regularly spend time doing your work at home.|
|Telephones & broadband||As long as your mobile phone and landline phone contracts are between your company and the service provider, you can claim tax relief. It gets a little more complicated if your company pays your entire personal phone bill, in which case the ‘benefit in kind’ rules become applicable. You can claim for business calls made from your personal phone, though you need to be able to prove that the call was for business purposes.
The cost of home broadband is allowable if you work from home and your broadband contract is between your company and the service provider.
|Subscriptions||You can claim tax relief on membership of HMRC-approved professional bodies as long as it is relevant to your work. The list of which organisations are approved changes regularly, so check with us for the current list.|
|Training||Training courses which are applicable to your work are an allowable business expense.|
When using a personal vehicle to get to a temporary workplace you can claim mileage at the rates shown in the table below. Your mileage should be recorded on your company accounts as this will help to reduce your overall Corporation Tax bill. If you drive a company car, you can only claim the cost of fuel.
Business mileage rates 2019/20
|Vehicle||Rate per mile (on first 10,000 miles in tax year)||Rate per mile (on each mile over 10,000 miles)|
|Cars and vans||45p||25p|
It’s important that you keep accurate records and copies of receipts when claiming business expenses. myJSAonline is our cloud-based online accounting software which all our limited company contractor clients have access to. myJSAonline has been designed to be easy to use, so you can record business expenses quickly and accurately. You should file and retain copies of all receipts and keep them safely filed with your accounting records for at least six years as HMRC could decide to investigate within this time.
Got a question?
Claiming expenses as a limited company contractor can be confusing. That’s why our team of expert contractor accountants is here to help. If you have any questions about any aspect of claiming expenses as a limited company contractor, please get in touch, we’ll be pleased to help.