As a Limited Company contractor costs that are incurred wholly, exclusively and necessarily for your trade can be claimed as business expenses, which means that you will receive tax relief on these costs. Broadly speaking every £1000 or expenses will save your company £200 in corporation tax.
Claiming business expenses correctly will help to reduce the company’s exposure to corporation tax. Business expenses are deducted from your company profits and as you only incur tax on your profits, if your profits decrease then your tax bill will decrease as well.
HMRC define business expenses as costs which are incurred are wholly, exclusively and necessarily for your business. As a limited company contractor operating outside of IR35 you may be able to claim costs if they fit this description. See below for some examples of business expenses:
- Accountancy Fees – As this cost is directly related to the running of your business it can be claimed as a business expense. Other professional fees such as legal fees can also be claimed.
- Business Travel – If you are required to travel for your business then you are able to claim the cost as a qualifying expense. Contractors can claim mileage of 45p per mile for the first 10,000 miles traveled in a financial year and 25p per mile thereafter. This amount covers fuel and any wear and tear on your vehicle. If you travel via public transport you are able to claim the cost as an expense as long as you keep the receipt. Toll fees, congestion charges and parking costs can also be claimed as expenses.
- Accommodation – If your business requires you to stay away from your permanent address then the cost could be claimed as an expense. You may also be able to claim for subsistence.
- Mobile Phone Bill – If you use your phone entirely for business related use then you are able to expense your entire phone bill. However, most contractors will use their phone for both business and personal use and in this case only the minutes and texts that have been used for business purposes are able to be expensed. In most cases we would apply a reasonable estimate for this.
- Training Courses – If the training course in question is wholly and exclusively for business purposes then the cost may be claimed.
- Stationery – Branded stationery such as letter heads, envelopes, pens and other items can be claimed as expenses if they are used solely for business use.
- Clothing – As a general rule clothing that could be used as part of your everyday wardrobe such as business suit or business dress cannot be claimed as an expense, even if you only use them for work. Clothing can be claimed as a business expense includes branded uniform items and protective work clothing.
Laptops and tablets, computer consumables, PPE and insurances are also business expenses. It is recommended that where possible those expenses are paid through the business bank account. If any business related expenses are paid through your personal bank account or credit card, it is still possible to claim relief on them providing you have kept appropriate records.