Download NM Expense Guide For Contractors

Expense Guide For Contractors
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If you incur expenses then these can be claimed from the company as long as they have been incurred
‘wholly, exclusively and necessarily’ for the purpose of trade.
Important Note:
HMRC can conduct a business records check enabling them to check what’s been claimed . They will ask
you to provide evidence that the expense that has been incurred, was a genuine business expense (i.e.
supported with a valid receipt). When claiming business expenses you must ensure that you only claim
allowable expenses and that you retain the receipts
You must keep copies of your receipts for your own records for 6 years
Examples of expenses you can claim
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Travel and Subsistence
•
Accommodation
•
Mobile Phone Costs
•
Training
•
Childcare Costs
•
Annual Party
•
Accountancy Fees
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Insurance
•
Pension Contributions
Travel Expenses
Claiming travel expenses to a temporary workplace is allowable provided you expect to visit the workplace for
less than 24 months. As soon as you expect to spend more than 24 months the workplace becomes a
permanent workplace and the travel is no longer allowed as it becomes ordinary commuting. The costs for
associated expenses; namely subsistence and accommodation, are not allowable once you expect to exceed
24 months at the site. If you expect to spend more than 24 months at the same workplace please contact us
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You can make travel expense claims for the following:
Mileage Claims:
If you use your own vehicle for business travel, a mileage allowance can be claimed from the company to
cover the cost of fuel, depreciation, insurance and any other running expenses attributable to the business
travel. The rates are set out below
The HMRC Mileage Approved Payments (MAPS) are:
First 10,000 miles in year
Additional miles
Cars and vans
45p
25p
Motor cycles
24p
24p
Bicycles
20p
20p
Other costs:
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congestion charges and tolls
•
parking fees
•
tolls
•
travel insurance
Important Note:
You need to provide sufficient fuel receipts to cover the mileage you claim. Please ensure that you ask for a
VAT receipt from the retailer which you must retain for your records
Subsistence
The cost of lunch can be claimed when working at a temporary workplace. This must be in the form of a prepacked sandwich or a meal at a cafe, the cost would not be allowable if the employee was simply reimbursed
for the ingredients to prepare his/her own packed lunch.
If you are staying overnight on business away from home at a temporary workplace, you may also claim for
the provision of breakfast, an evening meal and a ‘flat rate’ un-receipted subsistence allowance of £5 per night
(£10 per night if working overseas) to cover small incidental personal expenses such as laundry, newspapers
etc. You can only claim these expenses when you claim overnight accommodation.
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Accommodation
If you need to stay away from home in order to work at a client’s site, the accommodation costs incurred can
be claimed from the company and will be deductible for corporation tax purposes. It should be noted that the
accommodation claimed must be separate to the employee’s permanent residence in order for it to be
allowable and the employee should not be accompanied by family.
The expense should be incurred ‘wholly and exclusively’ for the purpose of business and whilst there is no
specific limit to the cost of accommodation, the standard of accommodation provided should not be unduly
lavish or exceed that of the employee’s primary residence so not to be seen as a reward for the employee’s
service.
Alternatively a short term lease on furnished accommodation (eg. flats) can be obtained as a cheaper and
more convenient alternative to hotels Provided that the total cost of the accommodation is appropriate to the
business need and does not exceed the cost of a hotel of appropriate standard, the claim will be allowed.
Mobile Phone:
The provision of one mobile telephone per employee is not classed as a benefit in kind and is deductible from
the company’s profits for corporation tax purposes. The benefit in kind exemption covers the telephone itself,
any line rental and the cost of private calls paid by the employer on the telephone. To qualify for this, the
contract must be between the mobile provider and the company (the company name should therefore appear
on all phone bills) and payment for the phone must be made directly from the company bank account.
Training
The cost of training to maintain skills that are relevant to your current assignment or prospective new
assignments that are relevant to your work or enhancing an existing skill can be treated as a company
expense. They will be allowable for corporation tax and will not create any benefit in kind or associated
personal tax charge. There should be an expectation for the skills or personal qualities improved through
training to be useful in the performance of the employee’s duties.
Childcare Costs:
There are two mechanisms by which the company can provide for childcare costs:
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Direct Agreement – this is where the company agrees with a registered childcare provider to purchase
childcare and to provide it to the employee. A simple letter stating that your company agrees to
purchase childcare on behalf of the employee is sufficient evidence of the existence of such an
agreement.
•
Voucher scheme – the company purchases vouchers from a childcare voucher scheme provider and
issues the vouchers to the employee who then uses the vouchers towards their childcare costs.
Scheme providers usually charge an administration fee for this.
To qualify, the following conditions must be met
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The child must be your child/stepchild for whom you have parental responsibility
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The child must live with you
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The child qualifies up to 1st September after their 15th birthday (16th birthday if they are disabled)
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The childcare provider MUST be a registered childcare provider, not just a relative or friend
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The amount claimable is dependent upon the employee’s tax position – the employer must carry out an
earnings assessment based on the employees anticipated salary for the year. Please contact us on 0333 121
2003 for further information.
Accountancy Fees
As it is a legal requirement for companies to prepare financial statements and tax returns; accountancy fees
therefore meet the criteria of being wholly and exclusively a business expense. One thing to note however is
that fees incurred in the preparation of self assessment tax returns would not be a business expense and
should therefore be paid personally – at Numbermill Accounting, we will prepare a basic return free of charge
for our clients where we receive details (self assessment questionnaire) by 30th September following the end
of the tax year (subject to when in the tax year you became a client).
Company Insurance:
You will often find that your assignment contract stipulates that your business holds certain insurances
particularly Professional Indemnity and Public Liability. Even if this is not the case your livelihood maybe at
stake if you do not have insurance and a claim is made against you.
Professional Indemnity Insurance
As a supplier of professional services a customer will rely on the advice you provide. Should this prove wrong
or inaccurate then your business or you personally could be liable for financial losses suffered by that client.
Professional Indemnity is essential insurance protection and will cover you against such financial losses as
well as any legal and other costs incurred to rectify a problem.
Most good policies, as well as covering your negligence, loss of documents and data will also provide
protection for areas such as defamation and loss of client fees.
Employer Liability Insurance
This insurance provides cover for employees who might be injured or killed in the workplace. It is a statutory
requirement to have a minimum of £5million unless you are exempt because you do not employ anyone or the
only employee is yourself and you own more than 50% of the share capital.
Public Liability Insurance
This insures you against injury or death to third parties and damage to third party property as a result of any of
your business activities. It is not a legal requirement but it is nonetheless recommended.
Use of home as office
Your home is designated as your permanent place of work and as you will be carrying out your administrative
duties from home, you are allowed to claim an allowance for its use. You may claim an allowance of £4 per
week for each week you work. Receipts are not required. If you wish to claim any other amounts you should
contact us for guidance on what is allowable.
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Annual Event
An annual event is an allowable expense for the company and is treated as a tax free benefit for any
employees providing the following conditions are met:
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The total cost must not exceed £150 (inc. VAT) per head, if the cost does exceed this limit then the
entire cost will be treated as a benefit in kind;
•
The event must be open to all staff
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You may invite a partner, but if partners are invited, all staff must be entitled to invite a partner –
invited partners will also be given an allowance of £150 per head.
You may have more than one annual event in a year, though you must be able to justify (if questioned by
HMRC) that they are genuine annual events i.e. a summer barbeque, a winter ball etc., rather than just a night
out for your employees every now and then. If multiple events are held, the total cost of all events added
together must not exceed the £150 per head allowance.
Business Entertaining
If you incur costs entertaining a potential client with the intention of winning a particular contract or extending
a current contract, the costs incurred in doing so can be claimed from the company. Please note however that
expenses of this nature are not deductible for corporation tax.
Any costs of entertaining should be commercial, reasonable and the company should expect to generate
future revenues as a result of the expenditure taking place.
Even though entertaining expenses are not deductible for corporation tax, it is still worth claiming these costs
from the company because if they are paid from your personal income, this will be after having paid personal
tax.
Pension Contributions
A pension contribution by an employer to a registered pension scheme in respect of any director or employee
will be an allowable expense.
We can provide you with the details of an Independent Financial Advisor should you wish to discuss this
further.
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