One of the main advantages of being a contractor is being able to claim back expenses. This can hugely benefit your limited company and ultimately your take home pay. Expenses are either completely refundable from your client or agent, or tax deductible, which you’re entitled to claim back for.
Below is a list (in order) of what we consider, in our opinion, to be the most valuable expenses you as a contractor can claim for and when you can’t claim for them. What’s crucial is to find out whether the expense is rechargeable or non-rechargeable. This will indicate what kind of reimbursement if any, you’re entitled to depending on the type of expense. Also, there’s also non-tax deductible expenses such as claiming for entertainment, but as this blog is aimed at showing the actual value of expenses, we aren't going to touch on non-tax deductible expenses too much.
Updated version of this article you can find here: what expenses can I claim through a limited company
Home Office: Expense Explained A contractor could claim back any increase in cost on utility bills including electricity and lighting & heating within a home office.
There are two ways that home office bills can be claimed back through a limited company - A flat rate of £4 per week (current 2013/2014 rate), which can be claimed back on all utility bills and household running costs and varying costs based on how much you use or what you use, can be claimed back and you don’t necessarily have to use the flat rate.
Examples of when you can’t claim
If your room is used to entertain clients, there may be a good chance a contractor cannot claim back home office use due to it coming under ‘entertainment costs’. The cost of your council tax or mortgage cannot be claimed back as an expense.
Broadband: Expense Explained The cost of business broadband is exempt from tax as long as the contract is in the name of your company and paid for from your business bank account.
Value The cost of the broadband is fully cost deductible.
Examples of when you can’t claim If you cannot prove that your business broadband is separate from your private internet, costs cannot be claimed back. However, if a contractor can use broadband for both business and personal, they’re able to claim 75% of the broadband bill.
Phone Bill: Expense Explained A mobile phone, no matter what the cost or make, can be claimed back as an expense from your business account, as long as it’s through the company.
Value The cost of the monthly contract through your business mobile phone can be claimed back plus any additional calls outside of the tariff. If your business phone is ‘pay as you go’, you can claim back all ‘top up’ amounts your company adds to your business phone.
Examples of when you can’t claim A second business phone will be seen as an asset, and therefore you cannot claim back on it. If the phone and contract are not under your company’s name, it cannot be claimed back as an expense, apart from the cost of business calls only.
Training: Expense Explained Any training that furthers your understanding of your profession can be claimed back through your limited company.
Value This can vary depending on your profession and the level of qualification. The receipt should be in the company name and through the contractor’s business bank account.
Examples of when you can’t claim If the training you do does not relate to your profession then you can’t claim it back as an expense. You also can’t claim back for a very specific qualification, due to how much it costs – an MBA (Masters in Business Administration) can cost up to £20k (ouch) and has been flagged by HMRC as one type ‘training course’ that isn’t covered in a contractor’s expenses.
Childcare: Expense Explained Childcare can be claimed back in the form of vouchers. This primarily benefits employees, but contractors can benefit from them too. These vouchers allow you to pay for childcare out of your pre-tax income and a contractor’s limited company arranges to pay for the childcare directly.
Value A basic rate taxpayer can claim a maximum of £55 per week (£243 per month) as an expense and a higher rate tax payer a maximum of £28 per week (£124 per month).
Examples of when you can’t claim If you claim for vouchers and don’t use them in the current tax year, then you can’t use them or get a refund.
Company Insurance: Expense Explained Despite not being a legal requirement for a single person company, it’s important to consider getting insurance when working within one. These are normally Professional Indemnity Insurance, Employer’s Liability Insurance and Public Liability Insurance and can all be claimed back.
Value You can claim back the full amount of the insurance exclusively through your limited company, and the cost of the premium can be claimed back in your company name.
Examples of when you can’t claim If you’re the beneficiary of a claim, it’s unlikely to be tax deductible from your limited company, e.g. private medical cover
Computer Equipment: Expense Explained Your company could ‘loan’ you computer equipment such a laptop for work purposes as well as software for those computer systems. These are all fixed assets and are tax deductible. If the cost of the equipment is over £1000, then it is treated as a capital item rather than a regular expense.
Value You can claim back the full cost of computer equipment totalling £1000
Examples of when you can’t claim A flat screen television, no matter what the size, does not class as computer equipment, despite its potential uses with a computer so therefore can’t be claimed.
Pensions: Expense Explained Working as a contractor through a limited company has its advantages. One of the biggest advantages is being able to add some of your income into a pension scheme, saving a large chunk of your corporation tax. If you’re a higher rate taxpayer, you’ll also receive a higher rate tax saving.
Value Up to £50,000 a year (20% corporation tax)
Examples of when you can’t claim An obvious one is if you have no funds in your business bank account registered under your limited company If you've gone over your £50,000 a year allowance you can’t claim back any more until the next financial year.
Accommodation & Meals: Expense Explained A limited company contractor could claim back expenses on subsistence while staying in temporary accommodation. Subsistence includes claiming back on food and drink (non-alcoholic) and accommodation. A contractor can be claimed back on a number of different kinds of accommodation including stays in a hotel, bed and breakfast, guest houses and rented accommodation.
Value The cost of a night in a hotel can be completely claimed back against working days only. You can also claim back the cost of an evening meal when staying away on business. Other things you’re able to claim back on include newspapers, phone calls home and laundry (if necessary). This can be claimed back using a flat rate personal incidental expense (PIE), which you can claim £5 per night in the UK or £10 for overnight stays outside of the UK.
Examples of when you can’t claim The 2-year rule also comes into play for accommodation and food & drink. Unlike working through an umbrella company, food and drink cannot be claimed back unless claimed with temporary accommodation, under your limited company. The cost of entertaining clients or colleagues can't be claimed back.
Travel: Expense Explained Our number 1 on the list has to be claiming for travel expenses. If you use your vehicle for business journeys, you can claim this through a number of miles covered, (but not petrol, insurance or car tax).
Value 45p per first 10,000 business miles in a tax year (as per 2013/2014 guidelines) 25p after 10,000 business miles in a tax year (as per 2013/2014 guidelines) You can also claim back on travel when using public transport such as trains, buses, planes or taxis.
Examples of when you can’t claim A contractor can’t claim back mileage on a company car. If you know you will work two years, travelling to the same workplace, the ‘2-year rule’ (find out more here) comes into force and therefore can’t be tax deductible.