What are expenses?
To run your business and generate income you may have to pay out various costs.
Some of these costs can be deductible against your business income (and thus lessen your tax liabilities) and some cannot.
It's important to know what you can claim through the business and what you cannot.
Furthermore, to claim expenses, you must have incurred the cost and it should be properly documented e.g. you have at least a receipt for the expense.
Expenses must have been wholly and exclusively incurred in the performance of your duties.
How are expenses paid?
There are two ways that expenses can be paid, directly from the company's account or by you, out of your own pocket.
If the expense has been paid by you, you are able to refund the cost back to yourself for the full amount of the expense. This is known as reimbursing expenses.
What type of expenses can I claim?
If the location you are working from in your contract is less than 24 months (see 24 month rule),you can claim the travel costs from your home to where you are working. This can be in the form of public transport costs, taxi’s or mileage (45p/mile for a private car for the first 10,000 miles and 25p/mile thereafter per tax year, 20p/mile for a bicycle). However, as soon as you are aware your contract location is longer than 24 months, you can no longer claim these travel costs.
Food and meals
If you qualify for the travel to and from where your contract is based, then you will also have the ability to claim food and meal expenses. You can claim on a receipt by receipt basis or you have the option to claim a flat rate. This depends on when you are leaving and returning from work, in summary, you can claim as follows:
|If away from home 5 – 10 hours||£5|
|If away from home 10 – 15 hours||£10|
|If away from home over 15 hours (and beyond 8pm)||£25|
|If working beyond 8pm supplementary rate||£10|
It is always good practice to keep hold of the receipts for the food expenses that you have incurred.
Please note, VAT cannot be claimed on the flat rate basis, but it can on receipt basis.
If you must stay overnight near where you need to carry out your contract, this can be claimable. This can be hotel costs or if you have rented out a property away from your family this can also be considered.
Use of your home as an office
If you undertake the majority of your work away from home, you can claim £6 per week (£312 for the year) “Use of Home as Office” allowance for the administration that you undertake at home. This is an agreed and accepted amount by HMRC and does not require any further evidence to back this up. Up to 31st March 2020, the rate was £4 per week (£208 for the year ) so if your accounting year spans this date, it will need to be claimed at the two rates.
Alternatively, if you do regularly use part of your home to undertake a contract there is a different method. It involves some more work to determine the amount you can claim but usually results in a much higher amount that is claimable.
If you want to claim based on the alternative method, (see here).
Telephone & Internet
If you work from home then you should not claim for the line rental. This is because you have to pay this regardless of whether you run the business from the home or not.
However, the cost of the calls made from your home can be claimed as allowable expenses. Alternatively, you can claim the full cost of a separate dedicated business line.
With regards to the internet cost, you can claim a reasonable amount depending on how much is used by the business.
If you use your mobile phone for work, you can make a claim for the business element of this, even if you pay for the mobile phone privately. If you have a business contract you can claim the whole cost.
You can claim the full cost of your accountancy fee, providing the time is spent working on the company and not personal tax matters. If you claim for personal accountancy costs through the company it would be deemed to be a benefit in kind.
Any costs incurred due to setting up your company are allowable expenses and can be claimed back. These costs can relate to company formation, accountancy, stationery, equipment and travel.
If the training relates to improving your current skills and can be applied to your work, then you can claim the full cost of these. Additionally, any travel and other associated costs can be claimed also. If in any doubt, please contact your accountant to discuss this in more detail.
Any equipment purchased that is needed in order to perform your work are fully allowable through the company.
However, if the equipment purchased has a dual-use (e.g. business and personal) you will need to ensure that this is not significant. For example, furniture and computer equipment could have a dual purpose but are normally fully allowable against the company. However, the cost of a car, even if predominantly used for business, will have a benefit in kind attached to it.
Business entertainment is not an allowable expense and will not reduce the company taxable profits.
Office & Stationery
Purchases for helping you run your business including stationery, computer consumables and postage are all fully allowable through the company as expenses.
Generally, any insurances relating to the company are allowable. This might include office, professional and public liability insurance.
However, insurances relating to other forms of cover, including medical and life, can be allowable but may have benefit in kind issues (depending on the type of policy) which might outweigh the benefit of paying through the company.
Pension payments made to your company pension scheme are 100% allowable for tax relief. Furthermore, there is no maximum amount that can be claimed.
Personal contributions into a personal scheme will need to be included on your personal tax return.
One additional claim you can make is for an annual party, traditionally this is done at Christmas but it can be at any time of the year. You are allowed £150/person and you can also include your partner. The total cost is to include travel costs, possible overnight stays and the event itself. This can be as simple as a meal out in a restaurant.
Recently introduced, you can give a gift to the value of £300 in any one year to employees if the following conditions are met: -
- Anyone gift is not more than £50.
- The gift cannot be changed into cash. (i.e. It can be gift cards but not gift vouchers)
- The gift is not for work reasons. (i.e. it can be for Birthdays or Christmas)
This would depend on the type of work you do. Generally, for most types of professional office-based work, you are not able to claim any costs against suits, shoes, or any other clothing.
However, if you need specialist clothing in order to perform your duties, you can claim. Such items may include:
You would be able to claim for the purchase, cleaning, repairing or replacement of these items of clothing.
Additionally, if you need to wear a uniform this can also be covered as a business expense.
Eye Tests, Glasses or Contact Lenses
You can generally claim back the cost of eyesight tests assuming you undertake VDU work that may have a detrimental effect on your eyes. This is generally a legitimate business expense that does not attract any benefit in kind liability.
Furthermore, if the test identifies that you (or your employees) need glasses or contact lenses solely for using the monitor you will be able to claim this as a legitimate business expense also.
However, if the use of glasses is required due to the general nature of your eyes and does not relate to any specific use then you cannot claim for the expense through the business.
If you are a contractor and working inside IR35, you may not be able to claim certain types of expenses, including subsistence, travel and other common expenses as above. Please ask your accountant how expenses are claimable, if inside IR35