Contractor's Guide to Expenses

Contractor's Guide to Expenses

What expenses can I claim as a Contractor working through my own limited company?

If you’re a contractor working through your own limited company IRD state that expenses can be claimed provided they are wholly and exclusively for the purposes of your business. This means you can claim things like: company formation fees, accountancy fees, business travel and accommodation, postage, stationery, telephone calls, employer’s N.I. contributions, subscriptions, insurance, contributions to an executive pension plan, business entertainment etc.

What is a valid business expense?

Meal allowance

You can claim actual meal costs whilst you are working at a remote site, away from your normal place of work, or when staying away from home overnight, but daily, round sum claims for meals are not permitted.

Travel expenses

You can claim the cost of travel to and from your temporary place of work. You can also claim for parking and possible congestion charges if applicable, but you may not claim for parking fines or speeding fines. The cost of travel by public transport can be claimed but you must have a valid receipt. 

Accommodation

The cost of hotel or bed and breakfast accommodation can be claimed as an expense, as can the reasonable cost of additional meals taken in conjunction with overnight accommodation. There are no set allowances for accommodation but the cost must be deemed to be 'reasonable'; this also applies to the cost of meals.

Clothing

You cannot claim for ordinary clothing which would form part of an 'every day' wardrobe even if you would not be likely to wear your working clothes anywhere other than at work.

Training

Providing the training course is wholly and totally relevant to the performance of your duties under your existing contract then you can claim this as an expense

Pensions

Pensions are big news as they represent one of the few remaining tax breaks available to contractors. You can invest part of your income into a Company pension scheme. You save not only the income tax that would ordinarily be payable but due to the pension contribution, your employers and employees national insurance contributions are lower than they would have been.

Do I need to keep my receipts?

It is highly advisable to hold onto your receipts because although your accountant will not need to see them, the Inland Revenue, if they choose to investigate, can go back numbers of years. If you are being investigated for tax fraud it is unlikely that you may be aware of this untill you are contacted by IRD. Far better to keep honest records.

One final word, remember you cannot claim for something you didn’t actually pay for in the first place, or can’t provide evidence that you did. You will be personally liable for any underpaid taxes NOT the company you're working through or taking advice from. You should therefore steer clear of companies and scheme providers promoting generous expense allowances with 'NO' receipts required.

Standard Allowable Expenses

• Accountancy Fees
• Business Travel (rail, air, taxis, etc.)
• Stationary and Postage
• Pension Scheme (if contributions are paid by the company)
• Telephone Calls for business purposes – unless you have a dedicated business line or mobile, you should highlight all business-related calls on your expense forms.
• Salary paid to the IT Contractor (and spouse if applicable) for work done
• Magazine and other subscriptions
• Relevant training courses
• Professional Indemnity and other IT contractor insurance
• Car Travel
• Car hire and parking (when on business)
• Computer equipment (tax relief is spread over several years)
• Subsistence and accommodation when working away
• Eye Test – you can claim back the cost if you use a computer screen!

Contact your accountant and make sure that you are claiming for the right expenses, it could be a costly exercise if you don't