Contractors Expenses

Firstly for any expense you wish to claim you must be able to prove to HMRC that you have actually incurred the expense, thus keep all receipts in a safe place.

Anyone who has suffered the stresses and strains of a full blown investigation by HM Revenues and Customs will know how important this is and that it should emphasised first in any advice on expenses. Remember that the tax man does not suffer from stress but is a carrier.

Expenses are allowable to be offset against tax, provided that they are incurred wholly and exclusively for the purposes of your business. If the expense has two purposes (Duality of purpose) it cannot be claimed as a tax deduction, i.e. clothes are an obvious example, you may need a new suit for work, but because everyone needs to wear clothes and it is possible to use the suit for non work related activities such as social activities weddings etc., it can not be claimed.

Business expenses are offset against a companies income when calculating profit for tax purposes i.e. they will save you corporation tax. For example if an expense was £100 excluding VAT, this would result in a £20 reduction in your corporation tax bill, at current rates.

Valid business expenses for Freelancers and Contractors are:

Travel Expenses

Providing the place you travel to is a temporary place of work, which generally means you a place you have not travelled to for more that 2 years and you are not intending to travel to for over 2 years, you can claim travel expenses.

When using your car for business travel the current rates are 45p per business mile for the first 10,000 miles and 25p per mile thereafter. This rate is intended to cover all costs associated with fuel and wear & tear on the motor vehicle. Parking tickets (not fines) trains, plane tickets, taxis etc. are claimable separately as they are incurred.

Accommodation

If you incur accommodation expenses for business purpose you may put these through your business. For most contractors this in the occasional bed and breakfast or hotel bill for site visits etc., this is fine to claim through your business, the only stipulation is that it must be 'reasonable' or HMRC will seek to disallow the expense. Also there must not be any duality of purpose, i.e.for a business trip combined with a holiday, all the expense would be disallowable.

Meal allowances

If you are working away from your normal place of work then you may claim the meal costs through your company. Note round sum allowances are not allowed, any expenses for meals must be incurred and be receipted (keep your receipts). Also putting your weekly shopping expenses through your company is not allowable and HMRC will pick up on this as they have seen it all before!

Training

You may claim training expense, through your limited company. However please note, the training expense must be totally relevant to the contract that you are doing. If it is a general academic qualification then this will not be allowed, or if it is creating new skills for you then it will not be allowable.

Pensions

Most Contractors will run a pension through their limited company, it is a simple thing to do, and will result in a tax deduction for your company. Its is a good tax break for Freelancers and Contractors, intended to help Contractors to provide provision for their retirement.

Freelancer Accounting is a specialist provider of fixed fee accountancy services to freelancers and contractors in London and the South East of England.

We understand that tax is complicated and we are happy to offer you face to face meetings at one of our office locations convenient to you.

You will have your own dedicated accountant as a point of contact.

We are accredited by the Professional Contractors Group (PCG) and are an ACCA Practice, so you will never have to worry about you tax and accounting affairs again.

If you are thinking of contracting or an existing contractor with questions and would like further advice, please do not hesitate to call your local Freelancer Accounting office on 0800 1357157 or email martyn@freelanceraccounting.com