Expenses guide – getting started

Expenses guide – getting started

Mar 18, 2024

Limited Company

What are expenses?

To run your business and generate income you may have to pay out various costs.
Some of these costs can be deductible against your business income (and thus lessen your tax liabilities) and some cannot.

It’s important to know what you can claim through the business and what you cannot.

Furthermore, to claim expenses, you must have incurred the cost and it should be properly documented e.g. you have at least a receipt for the expense.

Expenses must have been wholly and exclusively incurred in the performance of your duties.

How are expenses paid?

There are two ways that expenses can be paid, directly from the company’s account or by you, out of your own pocket.

If the expense has been paid by you, you are able to refund the cost back to yourself for the full amount of the expense. This is known as reimbursing expenses.

What type of expenses can I claim?

Travel Expenses

If the location you are working from in your contract is less than 24 months (see 24 month rule​),you can claim the travel costs from your home to where you are working. This can be in the form of public transport costs, taxi’s or mileage (45p/mile for a private car for the first 10,000 miles and 25p/mile thereafter per tax year, 20p/mile for a bicycle). However, as soon as you are aware your contract location is longer than 24 months, you can no longer claim these travel costs.

Food and meals

If you qualify for the travel to and from where your contract is based, then you may also be able to claim food and meal expenses, when away from your primary place of work.

It is always good practice to keep hold of the receipts for the food expenses that you have incurred, these can then be claimed for VAT and Corporation Tax purposes.

Accommodation

If you must stay overnight near where you need to carry out your contract, this can be claimable. This can be hotel costs or if you have rented out a property away from your family this can also be considered.

Use of your home as an office

If you undertake the majority of your work away from home, you can claim £6 per week (£312 for the year) “Use of Home as Office” allowance for the administration that you undertake at home. This is an agreed and accepted amount by HMRC and does not require any further evidence to back this up. Up to 31st March 2020, the rate was £4 per week (£208 for the year ) so if your accounting year spanned this date, it would have been claimed at the two rates.

Telephone & Internet

If you work from home then you should not claim for the line rental, if it is a personal contract. This is because you have to pay this regardless of whether you run the business from the home or not. However, the cost of the calls made from your home can be claimed as allowable expenses, as long as they are not part of a personal contract or plan. Alternatively, you can claim the full cost of a separate dedicated business line.

With regards to the internet cost, as with the home phone you can claim any costs that are incurred by the business, outside the personal plan that you have, or the whole cost of a dedicated business line.

Mobile Phones

In order to claim the full cost of a mobile phone contract, the purchase must be by the business, in the businesses name. You cannot claim a personal contract as a business expense, even if it is used wholly for business purposes. If you are using a personal phone and contract for business use, you may only claim for costs incurred outside of the personal plan.

Accountancy Fees

You can claim the full cost of your accountancy fee, providing the time is spent working on the company and not personal tax matters. If you claim for personal accountancy costs through the company it would be deemed to be a benefit in kind.

Pre-incorporation costs

Any costs incurred due to setting up your company are allowable expenses and can be claimed back. These costs can relate to company formation, accountancy, stationery, equipment and travel.

Training Costs

If the training relates to improving your current skills and can be applied to your work, then you can claim the full cost of these. Additionally, any travel and other associated costs can be claimed also. If in any doubt, please contact your accountant to discuss this in more detail.

Equipment

Any equipment purchased that is needed in order to perform your work are fully allowable through the company.

However, if the equipment purchased has a dual-use (e.g. business and personal) you will need to ensure that this is not significant. For example, furniture and computer equipment could have a dual purpose but are normally fully allowable against the company. However, the cost of a car, even if predominantly used for business, will have a benefit in kind attached to it.

Entertaining customers/suppliers

Business entertainment is not an allowable expense and will not reduce the company taxable profits, for Corporation Tax purposes.

Office & Stationery

Purchases for helping you run your business including stationery, computer consumables and postage are all fully allowable through the company as expenses.

Insurances

Generally, any insurances relating to the company are allowable. This might include office, professional and public liability insurance.

However, insurances relating to other forms of cover, including medical and life, can be allowable but may have benefit in kind issues (depending on the type of policy) which might outweigh the benefit of paying through the company. A Relevant Life Policy, is a tax-efficient insurance policy that provides protection similar to a ‘death in service’ policy and is an allowable business expense.

Pension Costs

Contributing into a pension scheme through your limited company (known as employer contributions), is generally more tax-efficient than contributing your funds as an individual, as you will reduce your company’s taxable profits and your corporation tax liability. This would not need to be included on your personal tax return. Your contributions are tax free as long as the contribution falls under the annual allowance (currently £60,000 in the year ended 5th April 2024 and will remain at £60,000 for the year ended 5th April 2025 and beyond). We would recommend discussing this with an IFA (Independent Financial Advisor) who can assist in setting up a pensions scheme, and we can provide an introduction if required.

Personal contributions into a personal scheme, would need to be included on your personal tax return.

Staff Entertainment

You can make a claim for an annual party or staff event. Traditionally this is done at Christmas but it can be at any time of the year. You are allowed £150/person and you can also include your partner. The total cost is to include travel costs, possible overnight stays and the event itself. This can be as simple as a meal out in a restaurant, though it does need to be open to all staff.

Trivial Benefits

You don’t have to pay tax on a benefit for your employees if the following conditions are met:

  • Any one gift is not more than £50
  • It isn’t cash or a cash voucher
  • It isn’t a reward for their work or performance (i.e. it can be for Birthdays or Christmas)
  • It isn’t in the terms of their contract

You cannot receive trivial benefits worth more than £300 in a tax year, if you’re a director of a close company.

Work Clothing

This would depend on the type of work you do. Generally, for most types of professional office-based work, you are not able to claim any costs against suits, shoes, or any other clothing.

However, if you need specialist clothing in order to perform your duties, you can claim. Such items may include:

  • overalls
  • gloves
  • boots
  • helmets
    You would be able to claim for the purchase, cleaning, repairing or replacement of these items of clothing.

Additionally, if you need to wear a uniform this can also be covered as a business expense.

Eye Tests, Glasses or Contact Lenses

You can generally claim back the cost of eyesight tests assuming you undertake VDU work that may have a detrimental effect on your eyes. This is generally a legitimate business expense that does not attract any benefit in kind liability.

Furthermore, if the test identifies that you (or your employees) need glasses or contact lenses solely for using the monitor you will be able to claim this as a legitimate business expense also.

However, if the use of glasses is required due to the general nature of your eyes and does not relate to any specific use then you cannot claim for the expense through the business.

Inside IR35

If you are a contractor and working inside IR35, you may not be able to claim certain types of expenses, including subsistence, travel and other common expenses as above. Please ask your accountant how expenses are claimable, if inside IR35

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