Allowable Expenses for Contractors Explained
If you’re running a limited company, did you know you can reclaim all of your expenses that are incurred wholly, necessarily and exclusively in the course of running that company? Today, we’re going to take a look at the typical types of expenses that you can claim for.
· Director’s Salary – a Sole Director should typically take a salary of £8060 per annum which works out at £672 per month and is just below the Primary Threshold (PT). If your limited company has other employees who are paid more than £156 per week, then it’s recommended that the Director take a salary of £11,000 to maximise the Annual Personal Tax Allowance and reduce the Gross Profit, saving £588 on the Corporation Tax (CT) bill.
· Salaries Paid to Employees – if you ask family members to help you manage your limited company, they can be registered as an employee on your company payroll. Once on the payroll, each “employee” can receive up to £11,000 per annum tax free – this is tax deductible which means that you don’t pay any CT on the amount which can save up to 20% on your CT bill.
· Employer Class 1 NIC Contributions – if you employ workers and pay them more than £156 per week you will be liable to pay 12% Employers NIC. You will receive an allowance of £3,000 but must pay any Employers NIC over this amount.
· Mileage Allowance – at a rate of 45p per mile for the first 10,000 miles and 25p per mile thereafter for own vehicle use. Even if you are a passenger in a vehicle and travelling for business purposes, you can claim 5p per mile.
· Parking – you can claim for parking costs and congestion charges. However, you cannot claim for parking or speeding fines – so be careful out there, folks.
· Public Transport – the cost of travel on public transport can be claimed as long as you keep a valid receipt. Make a record of dates, locations, reasons for travel, etc. so that you have supporting evidence should it be necessary.
· Subsistence – this includes accommodation and meals when travelling to a temporary place of work. This allowance is in addition to other necessary costs of travelling such as parking charges, tolls, congestions charges, business phone calls, etc.
· Training Courses – fees for training courses can be claimed as long as the skills are relevant to the business you operate.
· Postage, Stationery & Printing – although the costs are minimal on a day to day basis, they will add up over the years so keep a record of all these, along with receipts.
· Business Insurance
· Company Formation and ongoing costs
· Home Bills – if you work from home on a regular basis, you can claim for business phone calls, broadband, even the extra gas and electricity used. However, Directors (and employees) cannot claim back any proportion of rent, mortgage interest or council tax.
· Pension Contributions – for higher rate tax payers, investing net profit into a pension fund (rather than a dividend) provides an opportunity to increase it in a tax efficient manner.
· Business gifts – up to £50 per individual is allowable before more complex rules come into play.
· Purchase of computer equipment and software
· Advertising and marketing business costs
· Bank Charges
· Christmas Party
· Professional Fees – for example accountants and solicitors.
· Capital Allowances – depreciation of assets.
· Subscriptions – for example, trade association membership.
· Business Magazines and Books
· Annual private health check and eye tests for employees.