Tax tips for freelancers: What expenses can you claim as a limited company contractor?

24.10.2019

When you’re in permanent employment, it’s up to your employer to provide the things you’d otherwise take for granted. So what happens when you take the leap and start your contracting or freelancing career - who pays for expenses then?


Find out what you can claim as a business expense when running your own Limited Company.


What can I claim on my taxes? - The basic rules


When it comes to claiming business expenses there are a few rules that all contractors and freelancers in the UK must follow in order for them to be considered ‘allowable’ by HMRC:

  • Expenses must be claimed only when incurred wholly, exclusively and necessarily for the purpose of running your business

  • Expenses that have a dual purpose (ie you’d use them for both work and personal use) are not claimable in their full. For example, if you were to extend a business trip with personal days, you’d only be able to claim for the days which were used for business

  • Business expenses can be paid from your business bank account, or you’re able to reclaim expenses paid personally by your company account reimbursing you

  • Most business expenses can be offset against your Limited Company’s corporation tax liability, although there are some exceptions so be sure to check them with your contractor accountant

 

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What expenses can I claim? Tax deductions list


The majority of the payments made by your company that are necessary for running your business will be tax-deductible. So claiming these business expenses will improve your business health.

So here’s a list of business expenses that you can claim as a Limited Company Contractor:
 

1. Health checks and eye tests

If you use a screen as part of your job you’re able to claim back the cost of eye tests. Should you need to wear prescription glasses when working in front of the screen (but only for work purposes) you can also claim the cost for this.
 

2. Business insurance

So long as business insurance policies are purely for the purpose of running your Limited Company, you’re able to claim back the cost. This includes public liability, professional indemnity, employer liability, and content insurance.
 

3. Accommodation

If your contract requires you to stay away from home, you’re able to claim for your accommodation, travel, food and drink costs. These are referred to as travel and subsistence costs.
 

4. Bank charges

Any fees charged to your business accounts (including loan and credit card interest) can be claimed as a business expense.
 

5. Childcare

As childcare costs are not a necessity in running your Limited Company, you are not able to claim them as a business expense. Starting October 2018, however, a new tax-free childcare scheme was launched, meaning the government pays towards your childcare costs (up to a limit of £2,000 per year). More information about claiming childcare costs can be found here.
 

6. Using your home as an office

Working from home allows you to claim a proportion of your household costs and utility bills as a business expense. You’re either able to claim £4 a week, or work out how many rooms you use for work and how long you use them for. You are also able to claim for the cost of heating, lighting, accountancy and legal fees, so long as they’re purely used in the process of running your Limited Company.
 

7. Phone bills

You’re able to claim your phone bill as a Limited Company business expense if the phone is in your company’s name and all calls are purely for business purposes.
 

8. Annual staff party expenses

You’ll be pleased to know that if you ever choose to expand your business and take on employees, you’ll have an allowance of £150 per person for staff parties. As long as your staff event is recurring annually and open to all employees, then you’re good to go.
 

9. Equipment expenses

Laptops, scanners, and printers are all allowable expenses, so long as they’re used solely for the purpose of running your Limited Company.
 

10. Professional development expenses

These include expenses pertaining to training courses and personal development. Be sure to double-check with your accountant before undertaking any training, just to make sure it’s an allowable expense.
 

11. Travel expenses

You’re able to claim for travel expenses if you’re responsible for paying the travel costs and the travel is solely required for your job.

You’re currently able to claim the following amounts if you are using your own personal car and/or fuel for business purposes:

  • Cars - 45p per mile for the first 10,000 then 25p for every mile thereafter
  • Motorcyclists - 24p per mile
  • Bicycle - 20p per mile
  • Parking costs
  • Road toll fees
  • Congestion charges
  • Food and drink for overnight stays
  • Public transport
  • Vehicle insurance, repairs, and servicing

 

 

Claiming business expenses - The process

As a Limited Company freelancer or contractor, you can either pay your expenses straight from your business account or be reimbursed should you pay directly from your personal money.

Be sure to keep receipts and any records of money spent, as you’ll need proof of these to back your expense claims. Without accurate record keeping, you may find expense claims being rejected by HMRC. Whether you claim equipment costs or mileage traveling to and from a client’s office, be sure to keep records that are easily accessible and up to date.

One easy way to do so is by using online accounting software. Many of them offer a service to scan in your receipts and save them directly. You’re then able to have a digital real-time record of what you’ve spent and when.

 

One key tip before spending any money

If you are unsure if a payment can be deducted, speak to an Accountant to ensure what you’re claiming is allowed and you’ll be reimbursed for any amount paid out of your personal account. It’s their job to look at your personal circumstances and advise accordingly on what you can and can’t claim, so be sure to run any spending past them beforehand.

 

Claiming your expenses can reduce your tax bill and it doesn’t need to be time-consuming if you are aware of the expenses you can claim. So, keep a record of all your receipts and payments, and minimize your tax liabilities!

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