Contractor Expenses Guide: How to pay less tax and keep more of your earnings

As a contractor, you can reduce your tax liability by claiming expenses through your Limited Company. However, you need to be careful about which expenses are valid and which ones are not. We are here to help you with any questions you have about expenses and to give you tips on how to claim them properly. And don’t forget to save all of your receipts for the expenses you incur.

Below is a list of the common expenses that acontractor may have:

Travel

Using your own vehicle

You can use our monthly accounting spreadsheet to track your business trips in your own car, bike or motorcycle. We will calculate your claim based on the HMRC Approved mileage rates at the time.

Other Travel

You can also claim the cost of other types of travel related to your business, such as:

• Air fares, train, bus, tube, taxis

• Parking

• Congestion charges

• Tolls

You can only claim travel expenses when you go to a temporary workplace. If you plan to stay at a location for more than 2 years, it is no longer a temporary workplace and you should stop claiming travel expenses. If you are not sure if this applies to you, please get in touch with us for more guidance and advice.

Working from home

As a contractor, your home address is likely your permanent workplace and you can claim an allowance for using your home as your office. The amount you can claim depends on how much you work from home. We suggest 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 can claim more than that.

Accommodation

You can claim the costs of food and drink (subsistence) when you work at a temporary location. The amount you can claim should be reasonable, depending on how long you travel and work.

However, the rules for benchmark scale rates require some conditions to be met, such as independent verification of expenses for one-man and small companies. Therefore, we recommend to claim the actual amount of the expense supported by the receipt. HMRC may ask for receipts for any claims, so you should keep them as you would for any other business expense.

Mobile phone

If you use a personal mobile phone, you can only claim the cost of the business calls you make. If you want to buy a new mobile phone, you may want to get the contract in your Company’s name as the whole cost would be tax deductible (even if you use it for personal purposes as well).

Internet

A separate internet line is a tax deductible expense if the contract is in your Company’s name and you need it for business purposes.

Accountancy fee

Your monthly accountancy fee is a tax deductible expense.

Training

The cost of improving or updating an existing skill is a tax deductible expense, but the cost of learning a new skill is not. For example, a course on a new version of a programming language would be a tax deductible expense for a Computer programmer, but a course on how to be a driving instructor would not.

Charitable donations

Donations to a registered charity are usually tax deductible as long as you don’t donate more than your profit, turning your Company into loss-making.

Staff entertaining

The cost of an annual event (e.g. summer BBQ or Christmas party) is tax deductible up to £150 (including VAT) per employee and another £150 for their partners. If you spend more than £150 per person, the whole cost is not tax deductible.

Client entertaining

You can claim the reasonable cost ofentertaining clients through your company, but they are not tax deductible.

Trivial Benefits

Your Company can give your employees ‘trivial’ benefits without paying tax on them as long as they are less than £50 and not cash or cash vouchers. For directors, there is a yearly limit of £300 for trivial benefits. This exemption covers benefits like a bottle of wine for an employee’s birthday.

Pension contributions

Your Company can pay pension contributions to Directors and Employees from a company scheme as an expense. There are yearly limits to how much an employee can get in pension contributions and we recommend you talk to a Financial Advisor if you are thinking about pension contributions.

Professional Indemnity, Employer Liability and Public Liability Insurance

All employers must have Employers Liability insurance by law and many agencies need Professional Indemnity insurance. These are all tax deductible expenses for your Company.

Executive Income Protection

Executive Income Protection Insurance is an insurance plan that gives a monthly payment to the business if the executive or director cannot work because of sickness or injury.

Relevant Life Cover

Relevant Life Cover (a tax-efficient life insurance policy that lets companies give a death-in-service benefit to their employees (including salaried directors). The company sets it up and it pays atax-free, one-off amount on the death (or terminal illness diagnosis) of the insured person.

Computer equipment

You can claim the cost of computer equipment that you buy for your business. This is fully tax deductible as long as you do not use it for personal reasons. You can get back Input VAT even if you use the Flat Rate VAT scheme for purchases over £2,000 for computer equipment (and other capital assets).

Other expenses

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

• Printing

• Computer software

• Certain professional subscriptions

• Medical Insurance (*benefit in kind)

• Gym membership (*benefit in kind)

• company vehicle (*benefit in kind)

* benefit in kind - the individual pays tax onthe benefit of the company providing this expense – the company must reportthis expense on a form P11D

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