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Putting expenses through your limited company
Posted May 9, 2011
If you are a limited company contractor, you will incur a range of expenses while running your business. Here we look at what you can claim via your company, whether you're inside or outside IR35.
The General Rule
The general rule when it comes to claiming business expenses, is that these expenses must have been incurred wholly, exclusively and necessarily in the course of running your business.
HMRC states that a business expense is allowable as long as it isn't specifically non-allowable, and is not a capital expenditure.
There should be no duality of purpose when claiming expenses via your company, i.e. mixed business and personal use.
You should always keep an accurate record of all expenses you have claimed, together with receipts, just in case you need to prove that any past claims were legitimate.
The rules governing business expenses are complex, so you should always consult your accountants if you have any questions over what can and can't be claimed legitimately.
Outside IR35
Here are some of the most common expenses you will incur during the running of your company (subject to further HMRC restrictions within certain categories):
- Any salaries and NICs
- Training
- Business insurance
- Stationary
- Company annual return (AR01) fee
- Company formation costs
- Telephone / Internet costs)
- Use of home office (proportional or unreceipted nominal £3/day)
- Postage and stationary costs
- Travel (excl. 24 month rule), Parking
- Mileage costs if using own vehicle
- Subsistence
- Entertaining clients
- Banking costs
- Computer equipment
- Computer software
- Christmas party allowance for 'employees'
- Professional fees (e.g. your accountant)
- HP agreements (in company name)
- Capital Allowances (depreciation on assets)
- Accommodation
- Pension contributions via approved scheme
- Some professional subscriptions
Inside IR35
If your contract work is deemed to be caught by IR35, then you will receive your income in the form of a 'deemed salary' (subject to standard PAYE and NICs), together with a flat rate expenses allowance equal to 5% of your turnover from relevant engagements. This flat rate allowance is meant to cover the typical costs of running a company, from accountancy fees to stationary and business insurance. The 5% deduction can be claimed in all cases, and you do not need to demonstrate expenditure.
In addition to the 5% administration allowance, you can also claim for travel and accommodation expenses, pension contributions and certain other items.
You can read more in our guide to the deemed salary and the treatment of expenses here.
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