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What Expenses Can I Claim as a Limited Company Contractor

Posted by: Jim Sloan
Industry News

All businesses want to gain maximum profits and we can all appreciate that expenses play a big role in making that happen. However, there is a fine line between missing out entitlements and breaking the rules. Frankly, both outcomes are equally bad, which is why finding the right balance is essential.

It can be a very complicated area of business, but here are our top tips for overcoming those hurdles. When handled correctly, it will enable the company to avoid overpaying tax to HRMC. In turn, that boosts profit and growth in one fell swoop.

Does It Fall Outside Of IR 35?

Expenses related to travel and to work on a temporary site are among the most important. Before thinking about the individual claims, we would always suggest checking that the workplace falls outside of IR 35 terms. If it doesn’t, all expenses will become invalid.

For contractors, IR 35 legislation is built to stop people using companies as a payment vehicle. For the company to be a genuine contracting operation, it shouldn’t be working in a permanent place. If the contract lasts for longer than two years or sees the company spend more than 40% of its time there for an extended period, it’s unlikely to pass.

That’s not to say other expenses can’t be claimed back. However, those related to travel, for example, will fall outside of that remit.

The 5% Rule

There are various other stipulations related to expenses. A company hit by IR 35 can claim back 5% of net sales, travel and accommodation, pensions, and professional subscriptions. Of course, the travel aspects have to satisfy the temporary location demands.

Again, the situation can change when not affected by IR 35. This is why we advise all contracting firms to gain a comprehensive understanding of this element.

Other Expenses

Our experiences in business highlight that SMEs can encounter various expenses over the year. These can cover a wide variety of areas. This list may include;

-Tools and equipment.
-Training and learning materials.
-Accountancy. -Company formation.
-Salaries and National Insurance contributions.
-Stationery and postage.
-Bank charges.

Even when items cannot be claimed back, such as when the company didn’t make a profit, they should be recorded. A limited company without those records is open to major problems.

Exclusive For Business

Arguably the most common issue we see, however, is when businesses claim back personal expenses. When regarding this topic, our advice is that it’s better to be safe than sorry.

If the expense is not incurred solely by business matters, it shouldn’t be included. It must be a necessity for those endeavours whether it’s clothing or tech equipment. The company cannot be used as a vehicle to gain personal benefits.

The Verdict

There’s no question that failure to claim back expenses can harm a company’s profits. After all, paying increased tax without factoring in the operational costs will only make things tougher.

On the other hand, claiming too much can lead to very real repercussions. A little research, taking professional advice and a lot of honesty are key.

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