A good accountant can tell you the expenses you can claim in more detail, however this page will go over these briefly. Contractors pay Corporation Tax on their profits every year which lower overall profits. If you claim expenses, you can pay less Corporation Tax. This happens because the expenses add to your costs, which therefore lower your company’s profits.
Keep records of your expenses
Calculating expenses claims is not easy. You need to give accurate figures on your tax return from all of your receipts, which is why it is important to keep them. You can keep records on paper or electronically. If you want to save it electronically, such as on a computer, you would need to scan both sides of all paper receipts if both sides are printed on.
If HMRC calls you up to be investigated, you would need to show your expenses records to prove they are real.
What happens if I don’t keep records?
A legitimate way to lower taxes is to claim business expenses, which is money you spend for your business which increases costs.
However, claiming false expenses, where you do not spend the money you say you did, is tax avoidance. If HMRC finds that you are not keeping receipts and records, they will assume you are avoiding tax, whether the records are legitimate or not.
It is important to note that you need to keep records for at least the previous 5 years of the business running.
You can claim any equipment as expenses, as long as it is required for a contract you are currently working on or a contract you’re about to start.
Equipment that is bought for a future job is not an allowed expense. For example, if you are an IT contractor searching to buy Photoshop because you might get some graphic design work, it’s not an allowed expense.
Hotel and food expenses
During your working day, you can claim hotel and food costs but HMRC won’t approve if you are constantly going to 5 star hotels and Michelin restaurants.
It is worth mentioning that if the job lasts more than 24 months, or you know it will, hotels and food become a non-allowable expense because it is considered as your choice not to relocate closer to your job.
When it comes to claiming expenses, training is similar to how the expenses work for buying equipment. So, you can only claim for training if it is relevant to your present job and upgrades the skills you already have.
If you take on a job that needs a certain skill that you don’t have, you will have to pay for the training yourself.
If you have a separate workplace from your home, any travel between the two is a non-allowable expense. On the other hand, travelling to clients for your contractor job is an allowed expense.
For the first 10,000 miles per year, you can claim:
- 45p per mile in a car or van
- 24p per mile in a motorcycle
- 20p per mile in a bicycle
Remember to keep records of how frequently you travel for work.
Need help with calculating your expenses?
Whether you are self-employed or own a small business, our accountants in East London can help with your accounts, taxes and expenses to reach your business goals. To speak to one of our experts, contact us here.