Why claim expenses?
As a limited company owner you’ll incur a number of expenses in the course of running your business. These expenses can be offset against your overall tax liability.
You only pay tax on your profits, so by incurring more expenses you will lower your profits and the tax that you have to pay. This is why it’s essential that you claim all of the expenses that you can – nobody wants to pay more tax than they need.
It’s worth remembering that, as the owner of your company, you’ll actually be spending your own money so it isn’t worth buying things just to reduce your tax liability, but anything you need to buy should be claimed as an expense.
Limited companies are able to claim for a wider range of expenses than standard self-employed sole traders, and this guide will breakdown what an expense is in the eyes of HMRC. We’ll also provide you with a few examples.
What is an expense in the eyes of HMRC?
In order to claim an expense through your company, you need to incur it wholly, exclusively and necessarily for business purposes. You won’t be able to put your weekly food shop through the business.
However, it is possible to claim for expenses that are dual purpose. Perhaps you are an IT contractor and you need a laptop for work, but you’ll also use it for personal activities. Let’s say that you use the laptop for 75% work and 25% for personal use, and it cost you £1,000. You can claim the business proportion of the laptop as an expense – so £750 in this instance.
Our expert accountants have a wealth of knowledge when it comes to managing limited companies and we are always on hand to offer contractors help on identifying what expenses they can claim.
Limited company expenses examples
We have put together a list of key limited company expenses that most contractors claim. Each individual business is different, so some of these may not be applicable to you. Speak to your accountant to find out more about expenses you should personally be claiming.
Travel & accommodation
If you have to travel to a temporary place of work you’ll be able to claim the cost of travel as an expense. If you are using your own car you can claim 45p per mile for the first 10,000 miles each tax year, and get your limited company to reimburse you. If you are travelling by public transport you can claim the cost of the ticket.
Sometimes you might be required to stay overnight. As long as you choose a reasonable hotel, you can claim the cost back as a business expense – just don’t go booking a 6 star hotel as HMRC may argue that it isn’t necessary.
Use of a home office
You can claim for using your home office in one of two ways. The most common is to claim a flat rate of £4 per week. However another approach is to analyse your bills and calculate how much extra you are paying out due to working from home – these excess amounts can then be claimed as an expense.
If you choose to go with the latter option it is important to remember that you can only claim for expenses that you wouldn’t have occurred if you weren’t working from home. Things like inflated utility bills are fine, but you can’t claim for council tax and mortgage payments, as you would have had to pay for these anyway.
If you have a business phone you can claim the handset and monthly tariff cost as an expense – just make sure that you can prove it was purchased by the company and for business purposes.
You cannot claim for a phone contract that isn’t held in the business’ name, so it’s worth bearing this in mind next time you think about getting a new phone.
As a contractor you are often advised to take out certain types of insurance, most commonly professional indemnity and public liability. many contractors are understandably reluctant to buy insurance, but it generally isn’t worth the risk to work uninsured and many clients won’t work with you if you don’t have insurance.
As insurance is something that is directly related to your business you’ll be able to claim the whole cost as a company expense and offset it against your tax liability.
There are bound to be communities or unions in your field that you’d like to be a member of – they are a great chance to develop your skills, network and keep up to date on the latest news. Most of these professional groups will require you to pay a fee to register and the full cost of this can be claimed, provided the organisation is included on HMRC’s list of approved professional bodies.
As a contractor, your business relies on your marketable skills, and it’s important to develop these skills and keep them up to date. You’ll have to arrange and pay for work related training yourself. The good thing is that if the course is relevant to your field, you can claim the full cost as a business expense.
No matter what field you work in, you’re likely to need some kind of IT equipment. Whether you need a computer, printer or tablet, if you require it for business purposes you’ll be able to put it through the business – just remember that if it is a dual use item you’ll only be able to claim for the percentage that you use it for work.
Now that you know more about claiming expenses, you might want to think about appointing an accountant. Award-winning accountant, Maria Williams, leads Integro Accounting and we pride ourselves on helping contractors just like you to get to grips with the complex world of taxation.
To find out more about our all-inclusive, fixed-fee service call our friendly accountants on 01242 504510 or email firstname.lastname@example.org
Why Integro Accounting?
Integro Accounting is the UK’s only specialist provider of fixed fee, limited company accountancy services for contractors, consultants and freelancers that was established to an award winning standard – our Practice Manager, Maria Hickmott FCCA, won The British Accountancy Awards’ ‘Accountant of the Year’ in 2011.
We were set up with the vision of providing a service that is the ultimate for the dynamic, busy professional of today in a language you understand.
Integro Accounting have designed a bespoke service for the contractor who is always on the go; never forgetting that one size will never fit all.
The relationship you have with your accountant is the most important factor in our service which is why we will always offer unlimited contact with your own personal accountant; whether that contact is via the phone, email or face to face.
We have our 3 offices located in London, the South-West and on the Bedfordshire and Buckinghamshire border. There are also meeting locations in many of the major cities and towns across the Home counties, South-West and South Wales, all conveniently placed so that you never have to travel far to meet your accountant.
If you have any questions about contracting or would like to find out more about how Integro Accounting can help you and business please call Christian on 01525 303984, email email@example.com or request a callback.