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Tax deductible expenses

Accommodation

When you are travelling and staying away overnight for business purposes, you are allowed to claim for your hotel, travel and meals. You can also claim £5 a night for “subsistence” (phone calls, laundry, etc.) and if it’s outside the UK, it is £10 a night. You need no additional receipts to claim this £5 or £10 per night.

Subsistence

We often get asked by contractors, freelancers and small businesses if they can put their lunch through as an expense. If you are working at a temporary workplace (see the 24 month rule above), the answer is yes you can claim for the cost of lunch. However, as with all expenses we advise you keep a receipt and keep the expense claim reasonable.

Clients often ask us if they can claim for a packed lunch. The answer is no – this means you cannot claim for a receipt of buying bread, ham and cheese!

Salaries

Salaries and national insurance contributions paid by the company are an allowable expense.

Many clients pay themselves £7,488 (in the 2012/13 tax year), which is the current national insurance limit. There are some that also choose to pay themselves the national minimum wage which is currently £6.19 per hour which on average week means they will pay themselves around the £12,000 salary. Please note, only directors are exempt from National Minimum Wage rules – so there is nothing stopping you from taking a tax efficient low salary.

Also do not forget if you have director’s loan account in credit (i.e. your company owes you money), you may withdraw money tax free from your business.

Subscriptions

Subscriptions can be to professional and trade bodies. They may also relate to magazines and industry journals. As long as they are related to your business they are allowable.

Certain trade organisations are not on HMRC’s list of allowed bodies, and so not claimable against corporation tax. An example of this is PCG membership, which is very popular with contractors and freelancers. Note however, we advise you still pay for this through your company, as that way it is not paid out of your taxed income.

Telephone

Any calls which are made for business purposes are fully allowable as they satisfy the wholly and exclusively criteria. Please note, you must have itemised billing and separate out the business calls.

Mobile and smart phones

A mobile phone (and smart phone) is an allowable expense as long as the contract is in the company’s name and is limited to one per employee.

However, if the contract is not in the name of the company, you will have to split out business and personal use by using itemised billing.

Training

Many contractors ask us if training courses are allowable? The answer as usual is yes and no!

If your training is relevant to your business and will help you in your business and work, then yes it is fully allowable, otherwise probably not. So for example, an IT contractor might be on a computer programming course and this would of course be fully allowable. However, if they went on a general “How to become a millionaire” course, this is not going to be allowable.

What if I am inside IR35, which expenses can I claim?

If your contract falls inside IR35, the only expense you can claim is the 5% administration cost. We however advise you still keep full receipts. Also note, contractors inside IR35 can still benefit from the VAT flat rate, and regardless of your IR35 status, a limited company is more tax efficient than an umbrella company.

Any questions? Speak to one of our friendly accountants on 020 7969 2879.