As the Director of your own limited company, you can claim expenses on costs you have incurred on certain business-related items and activities. Are you aware of the limited company expenses you may be able to claim?
You can claim a variety of expenses through a limited company, however the types of expenses you can claim tax relief on must be directly related to your contractor business and are classed as tax-deductible.
If you incur an expense that is tax-deductible, your limited company can receive a Corporation Tax saving on this expense. Corporation Tax, which is 19% for the tax year 2018/19, applies to Profit before Tax, which is all income less tax-deductible deductions, including expenses, National Insurance, and PAYE. For more information on how to claim expenses through a limited company, contact our team on 0203 189 1736 or request a callback.
Here are examples of the various different types of expenses you may be able to claim through your limited company:
If you operate outside IR35 legislation or operate inside IR35 but will incur an expense for non-ordinary travel, i.e. to a location other than the designated job site, you will be able to claim mileage expenses through your limited company related to the use of your own vehicle for business travel. If the above does not apply to you, you may not claim mileage or travel as part of the 2016/17 changes to Travel & Subsistence tax legislation.
For the 2018/19 tax year, the claimable amount for cars and vans is 45p per mile on the first 10,000 miles in the tax year and 25p per mile on each additional mile. When using public transport, you may only claim expenses related to business travel if you operate outside IR35 legislation or if you are inside IR35, you are making a non-ordinary business-related trip.
The same rule that applies to mileage and travel applies to accommodation as well because it is classed as an expense under Travel & Subsistence. Therefore, qualifying limited company contractors will still be able to claim the costs of hotels, Bed & Breakfasts (B&Bs) and rented accommodation. If you are staying in a hotel or B&B, you can also claim the cost of breakfast and dinner.
Home office costs
If your home office is where the majority of your time is spent, you are able to claim a percentage of gas and electricity bills, metered water costs and business phone bills when using a residential telephone line. These are calculated based on the time spent in your home office, the energy usage in your office, and the physical size of your office. You can also claim broadband internet expenses where the broadband is used for business purposes and is registered and paid for in the name of your limited company. If you only use your home office for paperwork and accounting, you can claim a flat £4 per week in order to recoup costs incurred with regards to utility bills.
For the 2018/19 tax year, you can receive tax relief on annual pension contributions of up to £40,000, or up to 100% of your earnings, whichever is lower. For example, if you earned £20,000 in the tax year but received funds from elsewhere and placed £25,000 into your pension pot, you could only claim tax relief on £20,000. On the other hand, if you earned £60,000 in a year and wanted to match that amount in your pension pot, you could only claim tax relief on £40,000 of your contributions.
As the Director and employee of your limited company, you can claim some of the costs of childcare as an expense through the childcare voucher scheme. A basic rate taxpayer may claim £243 in childcare costs monthly through their limited company, while a higher rate and an additional rate taxpayer may claim £124 and £110 monthly, respectively. In order to easily claim childcare expenses through your limited company, you simply need to source an approved childcare provider and arrange for the payments to be paid directly through your limited company bank account.
The childcare voucher scheme will be closed to new entrants from October 2018, however Tax-Free Childcare and 30 Hours Free Childcare are other options that can help parents see benefits.
You can claim tax relief on training course fees through your limited company as long as the training is relevant to your line of work and business, and if it acts as an extension to your existing expertise. You may also claim the costs of training books and manuals if they are necessary to complete the training. If you are changing your career, any training needed to enable this should be treated as capital expenditure and not a trading expense.
Where a person employed as a solicitor wants to train to be an accountant, training required to change their career should be capitalised. Where a person is employed as an accountant, any training to become a qualified accountant or expand their knowledge as an accountant is an allowable expense.
Computer equipment and software
Computer hardware or software can be claimed through your limited company as a business expense if the value of each item is equal to or is less than £1,000. If the item costs more than £1,000, it will be treated as a capital expense. This may be particularly useful if you are an IT Contractor.
Annual work event
You can claim the expenses of hosting an annual event through your limited company, provided the following conditions are met: it is an annual event that takes place at any time during the year; the event is open to all employees in the company; the cost per head does not exceed £150 (including VAT).
As the fee you pay to your accountant is directly related to your business, you can claim this fee as an expense through your limited company for a saving on Corporation Tax. This excludes personal tax-related fees. If you are a client of PMA Accountants, we will automatically process our flat monthly fee as an expense.
If you work with display screen equipment daily for at least an hour at a time, you can have your regular eye tests paid for by your limited company. If you require corrective lenses, the company can only pay for the prescription eyewear on your behalf, and claim the expense against the company’s Corporation Tax bill, if the results of the eye test can show that the prescription is for display screen work only. Otherwise the purchase could be subject to income tax and NICs as it would be a benefit in kind by the company.
Stationery and printing costs
You can claim the cost of reasonable business expenses relating to stationery and printing, such as postage, stationery supplies, printing and printer ink. Providing that the above expenses are entirely business related, you can claim them against your pre-tax profit.
If you are a member of a professional or trade association, which benefits your business and you would not have otherwise joined as an individual, you may be able to claim this cost against Corporation Tax. The subscription fees of such industry bodies can only be tax-deductible if it appears on HMRC’s ‘List 3’ of approved organisations.
Medical and health insurance can be an allowable expense, however the policy needs to be a specific Permanent Health Insurance (PIH) policy. The policy needs to be in the company name, and payments should be made from the company bank account. Alternatively, if you take out insurance in your own name rather than the company, claims will be payable to you personally and not subject to Corporation Tax. However businesses can often receive better value insurance cover than an individual.
Operating your contractor business through your own limited company allows you to claim expenses on many business-related costs which aren’t possible through an umbrella company. This gives you freedom, flexibility and control over your finances and helps you to maximise your take home pay. This is why so many contractors are opting to set up their own limited company instead of choosing to work through an umbrella company.
While operating a limited company does involve some administration, PMA Accountants help to ease the burden by assisting with your invoicing, payroll, bookkeeping, the filing of accounts and much more. We can also guide you through the process of claiming expenses, and advise you of the expenses you can claim through your limited company.