What expenses can you claim back?

There is a wide range of limited company contractor expenses that can be claimed back. These expenses can be used to reduce a company’s profitability in its accounts – this reduction in profit bring down the size of a corporation tax payment.

Capital allowances for contractors – purchased items

All sole traders, partnerships, and limited companies (including contractor limited companies) may spend up to £200,000 on capital items. This is called the Annual Investment Allowance. Capital items include office furniture, cars, computers, tools, software, and more – items which have a long-term usefulness for the purposes of trade.

Capital items bought for a limited contractor company must only be used for business reasons and not for personal reason (for example, a laptop).

All capital expenditure under £200,000 may be listed as “revenue expenditure” on financial accounts meaning that the total value of the items reduce the level of profit made, thereby reducing any resulting corporation tax obligation.

Note – the capital allowance will be increase for 2 years from 1 January 2019 to £1,000,000

Note – capital allowances for cars and vehicles depend on CO2 emissions

Capital expenditure – on lease or hire purchase

If a company buys a capital item on hire purchase or if the company leases a capital item, then the amount paid in interest and on the lease part of any payments counts as “revenue expenditure” meaning that it can be used to reduce corporation tax.

Clothing

Only clothing which is used “wholly and exclusively” for the purposes of business or a staff member’s employment is allowable. For example, protective clothing on a building site or within a chemical factory is permissible however clothes that can be worn for work and for leisure are not.

Training

If a director or a member of staff of a contractor limited company is sent on a training course which better equips the company to be more competitive or which imparts new knowledge to an employee or employees, training is 100% allowable if paid by the company or paid by the director who is then reimbursed by the company.

Communications costs

Business communication costs are allowable expenses – these include telephone lines, call charges, stationery, printing, photocopying, broadband lines, and so on.

If these accounts are held in the name of and paid for by the contractor limited company, the costs are 100% allowable. However, if the accounts are in the name of the director, then only part of the costs may be allowable.

Business entertainment

Entertainment is not normally an allowable expense. Claims can not be made for entertaining customers, suppliers, and clients nor can they be made for corporate hospitality.

Companies have a yearly budget of up to £150 including VAT per staff member to spend on entertainment – including food, drink, travel expenses, and accommodation. Most companies spend this on Christmas parties however a company can choose to spread the entertainment budget over a year. However, if more than £150 is spent on a staff member, then it becomes a benefit-in-kind and it will be liable for income tax, Employee’s National Insurance, and Employer’s National Insurance.

Subsistence

Subsistence is the term used by HRMC to describe providing oneself with food and drink at a minimal level solely for the purposes of carrying out business.

It is not considered as subsistence if a contracting limited company director or employee consumes food or drink at home or within the workplace as this consumption is done for the “purpose of survival”, the term chosen by various different tax tribunals on the subject. Subsistence is the cost of meals, drink, and accommodation away from the normal place of work – for example, as would happen on a business trip.

To qualify as a business expense, the travel undertaken which required a contractor or employee to eat and sleep away from their home or work premises must have been done so “wholly and exclusively” for the purposes of trade. This includes trips made to suppliers, to clients, to different work sites, to events, and to attend training courses.

If a contractor and their staff members (that is, someone on the payroll with an employment contract with the company) are away on business and the company pays for the meal, this is allowable as subsistence. Expenses incurred must be “reasonable” and at a “minimal level”. A reasonably priced meal in the hotel or at a local restaurant will normally be fine.

Contractor expenses when working away from home – travel costs

A contractor may claim hotel accommodation costs for nights spent away and for the cost of a rental property if the costs are incurred exclusively for business purposes.

For contractors and their staff using their own cars, they can claim 45p a mile for the first 10,000 miles and 25p thereafter. For motorbike users, the amount is 24p per mile regardless of the number of miles.

Hire car expenses, rail travel, air travel, tolls, taxi and bus fares, parking charges and congestion charges are allowable as long as the expenses are incurred wholly in the pursuit of business.

The cost of travelling to locations which aren’t a contractor or their employee's normal workplace is allowable, subject to the 24 month rule and the 40% exception rule.

Beware the contractor 24 month rule

When working for a client, a contractor cannot claim travel expenses once the work for a client has gone on for longer than 24 months or if an extension has been granted to previous work which would take the cumulative time spent with the client over 24 months.

The 40% exception rule

Contractors can disregard the 24 month rule if they spend 40% or less of their time at a workplace as long as that workplace is temporary.

Additional allowable expenses

Although not exhaustive, the following items also qualify as expenses for corporation tax purposes:

Would you like more information on What expenses can you claim back??

Explore More Resources

using an umbrella company

Beginner’s Guide to Using an Umbrella Company

If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.

After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.

 

PAYE and Umbrella

Guide to PAYE vs. Umbrella

PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.

To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.

Holiday Pay for Umbrella Contractors

Complete Guide to Holiday Pay for Umbrella Contractors

One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.

To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.

umbrella company

When Shouldn’t You Use an Umbrella Company?

Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.

One way that contractors can work is through an umbrella company.

Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?

To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.

umbrellas

The truth about HMRC approved Umbrella Companies

There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.

After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.

However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.

To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.

umbrella company costs

How Much are Umbrella Company Costs?

If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.

To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.

 

Choose Between PAYE or Umbrella

How to Choose Between PAYE or Umbrella

Every contractor faces the decision between PAYE or umbrella, but how do you know which is the best option for you?

After all, PAYE and umbrella both have key differences, meaning contractors should do their research to find the best path for them.

Thankfully, Umbrella Supermarket is here to help. In this guide, we take a look at PAYE vs. umbrella, explaining what you should know before making the all-important decision.

date rates vs hourly rates

Should contractors choose hourly or daily rates?

There are many decisions a contractor must make in their career. One important one is whether to charge daily rates or hourly rates.

Each option has its own pros and cons and will have a different impact on contractors.

Therefore, it’s important that every contractor does their research to find out which option is best for them.

In this guide, Umbrella Supermarket looks at hourly rate vs daily rate and the benefits and drawbacks of each, to help every contractor find the best route forward for them.

 

public sector private sector contractors

How to choose between public sector vs. private sector for contractors

Every contractor must make the decision about whether to work in the public sector vs private sector.

Operating in the public or private sector can have a big impact on the contractor’s career, including on what types of contracts they will work on, who they will work with to whether they will fall under IR35.

This is especially true since changes to IR35 legislation were rolled out in April this year which have had a significant impact on private sector contractors.

If you are debating between contracting in the public sector vs private sector, Umbrella Supermarket are here to help. In this guide, we outline the key differences between the public and private sectors and what effects this will have on contractors.

contractor options

Complete Guide to Contractor Options

Contracting has become an increasingly popular way of working in recent years. If you have decided that the time is right to begin your contracting career, one of the first questions you will ask yourself is how you will operate.

How they operate is one of the main decisions contractors must take which will have a big impact on your day-to-day contracting life.

After all, there are a number of ways you can work, including through an umbrella company or by being self-employed.

In this guide we look at umbrella company contracting vs self-employed contracting and the main advantages and disadvantages of each, to help you make the right decision.

 

Statutory payments

Statutory payments for contractors explained

Contractors can choose to work on a self-employed basis through their own limited company, or through an umbrella company as an employee of the provider.

Thousands of contractors choose the umbrella route. After all, there is a range of benefits to operating under an umbrella company, including receiving statutory rights.

If you are considering becoming an umbrella contractor in 2021 and want to know more about statutory payments for umbrella contractors, Umbrella Supermarket has put together this handy guide outlining everything there is to know.

comparing umbrella companies

What To Look Out For When Comparing Umbrella Companies

Working through an umbrella company has become an increasingly popular option for contractors in the UK.

An umbrella company makes contracting easy and hassle-free for contractors, saving them headaches on everything from tax, payroll, insurance to dreaded IR35.

However, with are so many umbrella companies out there, choosing the perfect one for you is no easy task.

To help, Umbrella Supermarket have put together this handy on what to consider when comparing umbrella companies, so you can find the best one in 2021.