Tax Advice For Contractors From the Tax Smart Group

The Tax Smart Group provides a guide to ‘common expenses’ claimed by the majority of contractors operating through a limited company.

As a general rule of thumb you can reclaim all expenses that have been incurred wholly, exclusively and necessarily in the course of running your limited company.

1. Director’s salary. Typically a Sole Director should take around £8,060 p.a. which is below the Primary Threshold. If the Limited Company has an employee other than the Director and is paid over the £156 per week then we recommend the Director takes a salary of £11,000 in order to maximize the Annual Personal Tax Allowance and reduce the Gross Profit by an additional £2,940 and save £588 on the Corporation Tax bill.
2. Salaries paid to Employees. It is possible that you may ask your spouse or another member of the family to help you with the management of your limited company affairs. You can register this person as an employee on your company payroll. This individual can take advantage of receiving up to £11,000 per annum tax-free and is tax deductible.
3. Employer Class 1 NIC contributions payable on salaries to company employees. If you employ an additional employee and pay them over £156 per week you will be liable to 12 per cent Employers NIC. You will receive Employment Allowance of £3,000. Any Employers’ NIC paid over this £3,000 is 100 per cent tax-deductible meaning that it is deducted from your Gross Sales before the CT is calculated at 20 per cent.
4. Mileage allowance of 45p/mile for the first 10,000 miles, and 25p/mile thereafter for own vehicle use.
5. You can also claim for parking and the congestion charges but you may not claim for parking fines or speeding fines.
6. The cost of travel by public transport can be claimed but you must have a valid receipt. A record of travel will provide supporting evidence if required at a later stage.
7. Subsistence. This includes meals and accommodation when travelling to a temporary place of work. This is in addition to other necessary costs of travelling e.g. parking charges, tolls, congestion charges or business phone calls.
8. Training course fees. As long as the skills are relevant to the business you are in.
9. Stationery, postage, and printing costs.
10. Business insurance. The most popular types of business insurance such as public liability, employers liability, legal expenses, tax investigation, and professional indemnity insurance are all legitimate business expenses, and are 100 per cent allowable.
11. Company formation and on-going costs (e.g. Annual Return fee).
12. If you have to work at home on a regular basis, you can claim for bills etc. to do with your work, e.g. business calls, broadband or the extra cost of gas and electricity for your work area.
13. Pension Contributions. Additional company income can either be put into a pension, or you can declare it as profit and take it as a dividend. Choosing the latter option, you could lose nearly half that income. Choosing the pensions option means that the whole amount goes into a pension fund and then has an opportunity to grow in a tax efficient environment.

This article is just for guidance only. Expense claims are a complicated area of taxation, and you should always consult your accountant if you have any questions.