Claiming Christmas expenses through your Limited Company

Claiming Christmas expenses through your Limited Company

Can I claim Christmas party expenses through my Limited Company?

The interest-free sofa adverts have started and the supermarkets are full of advent calendars, yes you’ve guessed it, it’s now officially Christmas. If you’re currently contracting within a corporate environment the annual Christmas party is probably a hot topic amongst permanent employees.

 

But there’s no need to feel left out, as HMRC give even the smallest of Limited Companies the ability to take advantage of a tax exemption for any allowable costs of their Christmas event. So you can still have a good old merry knees-up for your Limited Company’s most valued member of the team.

 

In this blog we take a look at the rules surrounding Christmas party expenses and what you can claim for. We also look at why it doesn’t have to be lonely this Christmas, as the rules for claiming can extend to others if you’re a single-person Limited Company contractor.

 

How much can I claim for?

If you take advantage of the tax exemption for annual events it means that you’ll only have to pay for 80% of the costs. HMRC usually spend most of the year telling you how to stay compliant and reinforcing the the taxes you must pay, so why not make the most of their generosity at this time of year?

 

Which HMRC rules apply to Christmas party expenses?

For your event to qualify for a tax exemption, the event must meet the following criteria:

The event must run annually - If you’re going to party once then you’ll have to do it every year (sorry about that….!) The event doesn’t have to be restricted to Christmas though, it could be a summer party or Easter event. The point here is that whichever event you choose to celebrate it has to be annually recurring. Do bear in mind though that if you decide to have an event for just one member of staff, you must still account for the expenses and that they will not be treated as tax allowable.

The event should be available to all employees in one location - That includes all directors, staff and guests. The guests of directors can include spouses or civil partners. Children of the directors or employees are also included within this. This inclusion therefore means that if you wanted to hold a Christmas party for you and your family, there’s nothing saying that you can’t. Part time employees are also included in this, so you could have a party for them, their partners and children.

There’s a limit of £150 per head - If you were planning on treating yourself or your employees to a Christmas party in the North Pole, it’s worth bearing in mind that there’s a limit of £150 per head. This is the absolute maximum and HMRC will make no exceptions. This is not an allowance and therefore it is the receipted amount that is an allowable expense.

The £150 includes VAT, transport costs and the total cost for any accommodation. The total amount is then added together and divided up between the number of guests attending the event.

If you’re feeling generous and thinking about footing the bill for any costs over the £150 per head, don’t! Even a penny over will mean that the exemption will be void and the total cost will be taxed. It’s not worth the extra large bill just before Christmas, so if you’re in doubt speak to your contractor accountant to be sure everything has been calculated correctly.

 

If you like to party throughout the year

Annual events don’t have to be limited to just one per year. You could hold one whenever you wish, as long as the total combined costs of all events do not exceed the £150 per head threshold for the tax exemption to still apply. If you do happen to go over the threshold for any particular event, HMRC will only apply the tax exemption to expenses for the events that have fallen within the allowable limit.

 

Giving gifts to employees

It’s also worth bearing in mind that you are entitled to claiming back any costs for ‘trivial’ gifts you purchase for your employees. Now this doesn’t mean that you can buy them all a brand new Ferrari and claim the cost back! These gifts must be in keeping with the season, so giving your employees a bottle of wine or turkey is acceptable, but giving them a case of wine or a Christmas hamper would be considered as a non – trivial gift and therefore not allowable.

 

It is always best to discuss any annual event expenses with your contractor accountant, to ensure that you are covered by the tax exemption before you part ways with your pennies. If  you’re thinking about switching accountant, or even becoming Limited in the New Year, call our team on 01202 375 562, or email us at enquiries@intouchaccounting.com.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

 

Mr Newspaperman: detention for shoddy homework

One month then payroll

Dear Mr Newspaperman,

 

Your recent article in the Guardian reminds me of an essay I wrote at school in Year 10. I too failed to do proper research and thought that sensationalism would save me from the wrath of people who know better. Alas in Year 10 the consequences were that I got a grade D for some shoddy work. You on the other hand have caused needless criticism of hardworking freelancers and contractors, who for a number of important reasons choose to operate their businesses through small companies.

 

Claiming tax relief for business expenses as a flexible worker is not exploiting a loophole, any more than your using any form of tax relief is a loophole. For your article to be taken seriously it needs to be factually and emotionally accurate.

 

Ever since I was born Her Majesty’s Government has given me an annual Personal Allowance to be used before I start paying income taxes, but does my accepting or using this allowance in times of austerity make me a tax dodger? Am I a bad person for using my tax free allowances? So what is the difference?!

 

If you or the other hacks in offices along the corridor, can show me that you don’t claim tax relief on items you are perfectly entitled to, for the reasons they exist in the first place, I will send you £1.

 

The other thought that struck me is that rather than reporting a ‘scoop’ from an unnamed government source you are being used as puppet. A scaremonger designed to upset the economy and create unfair, unjustified, unwarranted, unhelpful, unnecessary and undefended animosity between different categories of worker. Well I am sorry to disappoint you. The UK contractor and freelancer workforce is stronger than that, they are bold and proud and like many others have placed their trust in Cameron’s boys and girls to steer the economy further into the Black.

 

If the flexible workers of the UK are let down it is not because they shirk hard work, neither is it because the vast majority do not fully respect tax legislation. It will once again be because the people advising David and George have failed to do their homework properly.

 

If I read your article as a Year 10 assessment, my advice would be to make sure you do more research in future, don’t get your words mixed up and worst of all don’t be so easily influenced by the other boys. The only level playing field they are used to is the topography in the grounds of their public school! 4/10.

 

Paul Gough

Another flawed proposal

 

This latest reported plan for ‘one-month-then-payroll’ has already received huge amounts of criticism from IPSE, FCSA and the contractor community at large. Of course, with the Autumn Statement less than two weeks away we will be posting our reactions and summaries with the issues affecting contractors. Now is a good time to make sure you have a contractor accountant you can trust – with Intouch Accounting you get everything you need to run your company efficiently, including unlimited advice from your Personal Accountant to make sure you’re up to date with everything you need to know and do.

 

Everything you need for one fixed fee. Call 01202 375 562 or email enquiries@intouchaccounting.com

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Claiming mileage as an independent contractor

Claiming mileage as an independent contractor

As a contractor, you’ll undoubtedly already be claiming expenses against your tax bill. However, one of the most common areas of confusion is that of mileage. Many contractors may wonder whether they would be better off purchasing a company car (when trading as a Limited Company) or whether claiming the standard mileage allowance is in fact the most attractive option. On top of that, questions often arise as to how much can be claimed, up to what threshold and on what journeys.

 

With this in mind, here’s our own look at claiming mileage as a contractor, outlining everything which we believe you might need to know.

 

Company car vs mileage allowance payments

Limited Company contractors do have the ability to purchase a company car should they wish. From the outset, a company car might look like the best option. However when looked at over a number of years and when fuel, road tax, insurance and maintenance are taken into account, this isn’t always the case.

 

Many contractors make the mistake of looking at the tax savings across the first year which, when buying a company car, will always be greater due to the tax relief associated with the initial capital allowance on the purchase. In addition, many may not consider that if any personal journeys are made, this will be seen as a taxable benefit and the savings you might have made on initial corporation tax when purchasing the vehicle are suddenly diminished.

 

The company will also be liable to pay Class 1A National Insurance (NI) on the cost of providing a car, just as it would if you had been paid the extra salary and purchased a car with that directly.

 

Whilst there’s always exceptions, in most cases, once the tax and NI is taken into account over a longer period, especially if personal journeys are undertaken, using your own car and claiming mileage usually works out to be not only the simpler but also the most financially appealing option.

 

How much can you claim?

The current rates* per business mile as outlined by HMRC are as follows:

claiming mileage
*Correct at time of publication 29/10/15

 

To calculate the Approved Mileage Allowance Payments (AMAPs) over a given period, it is simply a case of multiplying the total number of business miles by the rate per mile for the vehicle. This can be used across more than one vehicle and should be calculated together as one allowance.

 

As a working example, if 12,000 miles were travelled each year in a car, the mileage allowance would be £5,000, worked out as:

  • 10,000 miles at 45p per mile (£4,500)
  • 2,000 miles at 25p per mile (£500)

 

It is also worth noting that additional expense of up to 5p per mile can be claimed when travelling with more than one person in the car. This is of course only when the passenger is also travelling for business purposes.

 

What journeys can mileage be claimed for?

When the purpose of travel is solely for business, expenses can be claimed back by the contractor as an ‘approved amount’. As would be expected, not all journeys can be claimed for and it is important to be able to correctly distinguish between ‘business’ and ‘private’ miles.

 

HMRC define ‘business’ travel as, “journeys forming part of an employee’s employment duties (such as journeys between appointments by a service engineer or to external meetings) and journeys related to an employee’s attendance at a temporary workplace.”

 

As such, for the majority of contractors, it is the latter which is most important given that a workplace is usually temporary for the duration of a contract. HMRC do not count travel between home and a fixed, (permanent place of work) as business travel, unless you have to travel to another location ‘outside the norm’ of your permanent place of work.

 

It is also important when claiming business mileage that you keep note of the following information which may be required by HMRC in order to qualify as an ‘approved amount’:

  • The date of the journey
  • The start and end locations
  • The reason for the journey and the parties involved
  • The number of miles
  • The name of any passengers
  • The mileage calculations

 

If you want any further information on claiming business mileage as a contractor, you can find this in our ‘What is a reasonable mileage claim for a contractor?’ blog. Alternatively, contact one of our team on 01202 375 562, to see how Intouch Accounting can help keep you compliant and maximise your income.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Travel and subsistence: It’s robbery

The taxman is claiming that Umbrellas are trying to steal from him, but is it the other way round? Travel and subsistence: It’s robbery

HMRC is trying to reach the conclusion that overarching contracts of employment (OAC) are a form of underhand scheme designed by shady Umbrella organisations and other non-compliant employment intermediaries to avoid paying an estimated £400m in Income Tax and National Insurance.

There is no doubt that modern employment models have moved on since the original tax legislation was first drafted, but subsequent tax changes have simply not kept pace with current practice.

Nevertheless, for HMRC to contemplate removal of tax reliefs on previously acceptable expenses, which they introduced, based on an argument that too many people may be benefiting, is a poor argument that will not protect the interests of the vulnerable and lower paid.

Following the issue of a discussion document in December 2014 HMRC invited comment from stakeholders in the temporary labour market, to help the Revenue determine if some end hirers, agencies and Umbrellas, pressurise temporary workers to operate under OACs which in turn allows them to make claims for home to work travel costs that would otherwise be ‘normal commuting’ in order to reduce overall tax payable to HM Treasury.

What is really interesting is the reasons that HMRC have stated as to why they believe contractors should not be entitled to claim travel and subsistence from home to their place of work:

  • “It’s not fair” on other taxpayers who cannot claim, as these other taxpayers are effectively subsidising abuse.
  • “We want to level the playing field” and treat all taxpayers in the same manner
  • “Technically flawed planning schemes” being deliberate abuse especially of the vulnerable workforce.
  • “Because the Treasury wants to collect more tax” – to reduce public borrowing we could always collect more tax.

It seems most likely that if all of the reasons why HMRC want to change the rules are placed in order of importance, then the final one is the biggest driver and therefore highest priority, as they themselves confirmed. The remaining issues are the political justification for a very unpopular and ill-considered project.

Technical highlights

When a worker travels from home to their place of work, the primary assumption is that this is normal commuting and tax relief for the costs of travelling or subsistence is not allowable. However, legislation provides for an exception to this restriction if the travel is to a ‘temporary’ place of employment, rather than a ‘permanent’ one.

This ability (under certain circumstances) for the existence of an OAC to transform what would otherwise be a permanent workplace into a temporary one is what creates the tax relief for expenses.

Other types of workers not engaged under an OAC (permanent, or short term agency contracts), could sit next to an Umbrella worker, may make the same journey from home to the same place of work and are not able to claim tax relief for their travel costs. So there is a moral justification and a case for symmetry of treatment but that only carries weight if one assumes the risks, responsibilities and rights and obligations are also the same for differing types of worker. Which they are not…

HMRC wish to collect £400m more in taxation, remove this inequality, level the playing field and stamp out tax avoidance…and protect the vulnerable worker’s rights and income! (It is not disputed that within this figure some non-compliant business models exist, which rely upon an aggressive interpretation of how the tax laws should be applied. They may fail under anti-avoidance legislation and remain a legitimate target for HMRC.)

The alternative options suggested by HMRC to collect this tax are also open to comment and may even be extended to include personal service companies (PSCs). Today’s main targets seem to be Umbrellas and tax avoidance scheme users; tomorrow’s may well include an attack on the independence of PSCs and small businesses.

If we assume that the estimate of tax loss from HMRC is indeed correct at £400m and HMRC outlaw current tax avoidance models and legislate to make all travelling from home to work under OAC non tax deductible, who will be the losers?

Any increase in the tax take has to come from somewhere. Will contractors and temporary workers in general, but especially at the lower skilled end of the market, be able to afford this additional burden? Will they be able to pass it on to their employer (the Umbrella)? Will the Umbrella be able to pass it on (via the agency) to the end hirer?

Will UK plc be willing to pick up the costs of an extra £400m and in doing so accept this hit to their profits? If they do, the taxable profits of UK plc will fall by the same amount and reduce the tax they pay by approximately £84m…I’m not convinced.

Umbrella v Limited – what’s right for you? Understand your options and contract with confidence. Contact us  to discuss your options.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Can I claim Christmas party expenses through my Limited Company?

Can I claim Christmas party expenses through my Limited Company?

The Christmas season is officially here and contractors working in corporate environments can’t fail to notice that their salaried colleagues are gearing up for the company Christmas party. There’s no need for contractors to feel left out though. HMRC allows even the smallest Limited Company to enter into the spirit of things and enjoy a tax exemption for the allowable costs of their Christmas event. So if you are the only employee you can still benefit and enjoy a well-earned Christmas shindig for your most valuable member of staff: you.

Taking advantage of the tax exemption available for your annual events means you effectively only pay 80% of the costs. And if you are your only employee, read on to learn why you don’t have to party alone…

It’s rare for HMRC to encourage you to have fun, so why not have a Christmas party of your own this year and make the most of it!

HMRC rules for Christmas party expenses

To qualify for a tax exemption the event must be:

Annually recurring

The timing of the event doesn’t matter. It doesn’t have to be a Christmas party; it could be a summer party instead. What matters is that it is an annually reoccurring event.  If you hold a one-off staff event you should still account for the expenses, but they won’t be treated as tax allowable.

Available to employees generally at one location

If your company has several locations the event must be available to employees generally at one location. The event must be available to both directors and staff or director’s guests (not just directors alone). Director’s guests can include a spouse or civil partner. It can also include director’s and employee’s children. This means you could hold a Christmas event for you and your immediate family if you wanted to. You could also hold an event for any staff you have (even a part-time employee), their partners and children.

A maximum of £150 per head

For each partner or guest who attends the event an additional maximum £150 per head is allowable. This is an absolute maximum amount which HMRC strictly applies.

The calculation of event costs includes VAT. It also includes transport costs and the total cost of any overnight accommodation. These combined costs are then divided by the total number of directors, staff and guests attending to arrive at the cost per head.

If the expenses of an event rise above the £150 per head maximum the exemption does not apply and the entire cost will be taxed. HMRC are very strict about this so to avoid any nasty surprises, speak with your contractor accountant to be sure that your calculations are correct.

If you have more than one annual event

Many Limited Companies hold more than one annual event. As a Limited Company contractor you’re free to do the same. You could choose to hold both a summer event and a Christmas event, for example. As long as the total combined costs of each individual event you hold do not exceed the maximum £150 per head the tax exemption will still apply. If any individual event costs exceed this, HMRC will only apply the exemption to expenses for the events which fall within the allowable limit.

If you have further questions about annual event expenses, or any other type of Limited Company expense, speak to us for more information.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

What is a reasonable mileage claim for a contractor?

What is a reasonable mileage claim for a contractor?

Many contractors need to drive long distances in the course of their work for clients. The costs of these journeys and maintenance of the vehicle used are legitimate allowable business expenses, but working out how to claim and what to claim for can get a bit complicated. To help make sure you claim all that you’re entitled to, below we look at the basic factors to consider when working out your vehicle expenses and mileage claims.

What are the key factors for making claims?

To work out which rules apply you first need to establish the following:

  • Who owns the vehicle? – There are different rules depending on whether you use a personally owned vehicle, or you use one owned by your contractor Limited Company.
  • What type of vehicle is it? – The applicable rules vary for cars, vans, motorbikes and bicycles, so the type of vehicle used for the journey is relevant.
  • Who originally paid the different types of costs? – Even if you own the vehicle personally, the reality is that costs such as insurance, petrol and garage bills are sometimes paid for by the company and sometimes from personal funds. Who pays makes a difference in terms of how to treat the expenses claim.

Claiming for vehicle charges on personally owned vehicles

How you choose to claim can have tax implications for both you personally and your contractor company. There are two options for claiming related expenses for contractors who use their own vehicle for business travel:

  • The contractor’s company claims the costs as a business expense – It may also be possible to claim back the VAT on these expenses if the invoice is in the company’s name. Of course, there must be expected business use of the vehicle to do this. If this option is chosen a benefit in kind (BIK) charge will be applicable which will attract additional personal Income Tax.The contractor must still claim reimbursement of these costs from their company. Most will do so by making a claim for business mileage under HMRC’s Mileage Allowance Payments (MAPs) system as this allows reimbursement up to an allowable amount with no tax implications. An alternative is not to be reimbursed, but to use the HMRC mileage claim rates to offset the BIK charge.
  • The contractor’s company pays the costs on the contractor’s behalf – With this method VAT is not reclaimable as the expense will be recorded as if the payment is directly to the contractor, similar to a loan. As the company is not claiming it as a business expense no BIK for the contractor arises.

What are Mileage Allowance Payments?

The contractor’s company can pay its employees Mileage Allowance Payments (MAPs) for expenses incurred during use of their own vehicle for business travel. Payments can be made up to an approved amount each year without have to report them to HMRC or paying any tax on them. These amounts are known as Approved Mileage Allowance Payments (AMAPs). Any payments or benefits over this amount must either be reported to HMRC or added to your loan account.

The ‘approved amount’ is calculated by multiplying the employee’s business travel miles for the year by the applicable rate per mile for the vehicle type.

To be certain that your vehicle expenses and mileage claims are reasonable and allowable speak with your Limited Company contractor accountants for expert advice and guidance. For more detailed information on this topic take a look at the Intouch briefing Car and Motorcycle Expenses for Contractors.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

What is the subsistence allowance for contractors?

What is the subsistence allowance for contractors?

It’s a regular part of many contractors’ lives to travel away from home for business related purposes. This travel could be to and from a client’s workplace in order to complete work, or making journeys elsewhere which are directly related to the work being done for the client. In some cases an extra early start, a late finish, or staying away from home overnight may also be needed in order to fulfil the client’s requirements.

 

During these times food and other subsistence expenses will be incurred – after all we’re human! Fortunately, the taxman recognises these subsistence costs as legitimate allowable business expenses for Limited Company contractors. HMRC have a number of subsistence claim options available which may be applicable to you and your business. It pays to take a look at these and make sure you’re claiming all that’s due to you.

 

Making a claim for subsistence expenses

For subsistence claims to be valid the following must apply:

  • The journey itself must be a legitimate business journey
  • The money must actually have been spent
  • Receipts must be available where required

There are two options for making UK subsistence claims:

Exact expenses incurred claim

You must keep records of all receipts to make this type of claim. You can then claim these expenses from your employer i.e.: your own Limited Company. The amounts must be entered for your company each year onto a Form P11D – Return of expenses, payments and benefits. You will then need to add these amounts onto your personal P11D for your yearly tax return as allowable expenses. The exception is where you have an HMRC dispensation which allows your company to report the amounts without you personally having to on your own return.

or

Flat rate claim

This is also known as a ‘scale rate’ or ‘benchmark’ claim. HMRC have published rates for certain subsistence items which they will accept without the need for receipts to prove the claim. You do need to ask HMRC that you wish to use the subsistence scale rates before you start claiming.

The current rates for UK subsistence are:

  • Breakfast rate:  Up to £5.00 per day can be claimed for the cost of breakfast away from home where the contractor leaves much earlier than usual or before 6:00am.
  • One meal rate:  Up to £5.00 per day can be claimed for the cost of a meal where the contractor is away from home for at least five hours.
  • Two meal rate:  Up to £10.00 per day can be claimed for the costs of meals where the contractor is away from home for at least 10 hours.
  • Late evening meal rate:  Up to £15.00 per day can be claimed for the cost of evening meals which the contractor would usually have a home. This applies where a contractor has worked a full normal day and leaves after 8:00pm.

If you are away overnight the daily subsistence rates do not apply. Instead, you can apply the overnight rules which allow actual hotel costs to be claimed in addition to ‘Incidental Overnight Expenses’ at HMRC rates. These allow for personal items such as laundry and newspapers. The current rates for these are:

  • £5.00 per night for overnight stays in the UK
  • £10.00 per night for overnight stays outside the UK

Incidental Overnight Expenses don’t need to be included on a dispensation. Also, if they are in line with the above rates, they don’t need to be reported on your P11D.

For more detailed information on this topic, download the Intouch Guide Subsistence Claims for Contractors.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

P11D forms are made simple by Intouch

P11D forms are made simple by Intouch

We’re now just over a month into the new tax year, and like many contractor accountants we’re busy preparing P11D forms for our clients.  In prior years this process has been quite time consuming all round, but thanks to ongoing Intouch developments the whole system is now quite painless for our clients.

The questionnaire we have developed will automatically gather the data it requires from the client portal, so we don’t need to ask clients the same questions twice, there’s no need for them to search around to find anything else they may need, and each form is then reviewed by their Contractor Accountant before being submitted to HMRC.  This allows us to offer advice every step of the way, and spend our time helping and advising rather than getting bogged down in paperwork.

Our first P11D submission was in fact made within a couple of hours of us releasing the form, from a happy client who has been with us since we started back in 2010….

“Yet another example of the well designed and easy to follow processes that Intouch offer. The whole portal experience stops me having to worry about my finances and lets me get on with running my business. I have never regretted choosing Intouch for my accountancy.  They are responsive and easy to talk to and always there when I need them and they offer excellent value for money.”

As a thank you to the client we’ve awarded £150 in Amazon vouchers. The first 500 submissions of the P11D questionnaires will also be entered into a prize draw where 4 more lucky clients will win £100 of Amazon vouchers, we’re hoping this will help show our other clients how easy the process is, and that there’s a benefit to getting it done early!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Top tax tips: Mobile phone in the company name

Top tax tips: Mobile phone in the company name

Mobile phones are an essential item for the majority of contractors, both for business and personal use. For most people, it’s almost impossible to imagine being able to function properly without one.  When it comes to making the most of your tax breaks through your business, one way to make savings is to have your principal mobile phone in the company name, with the company paying both the tariff and the cost of calls. As a company phone is not regarded as a taxable benefit to the employee this is a popular way to enjoy a useful tax free perk through your company.

What are the rules on company mobile phone tax exemption?

To be eligible for this tax exemption HMRC’s rules provide that:

  • The phone contract must be in the name of your company (your employer) and not you personally (the employee).
  • The phone handset must also be owned by the company, not you personally (double check this particularly if you have a SIM card only contract as you may have purchased a handset separately).
  • The exemption only applies to one mobile phone for personal use per director or employee. You can have more than one allowable mobile phone, but just not more than one per person for personal use. If you keep a second mobile, say in your office, and it is used solely for business this will also be allowable.

What’s the difference if I keep my phone in my own name?

If the phone contract is in your own name you are only able to claim the portion of the costs which relate specifically to business use. This can only be done by highlighting relevant calls on an official itemised bill supplied by your service provider and adding up all the call costs. This can be very time-consuming! Also, if the phone contract is in your own name and you decide to claim the full cost of calls through the company this will attract benefit in kind taxation, which can work out to be quite high in some cases. As such, the amounts claimed should be noted on your P11D.

What if I don’t want to buy a new phone or contract?

Many mobile providers will allow you to swap over your contract to the company name, so it’s worth asking if they will do this. If you take this route you should also invoice your company for the handset (basically sell it to the company). This will make it officially the property of your company.

Who can I give company phones to?

The exemption only applies to genuine employees of the business. Be particularly careful if you provide a phone through your business to a spouse or relative. They must be a director or employee of your company to be eligible for this exemption. In addition, you must be able to demonstrate that they perform a genuine work function in the company that would also ordinarily require business use of a mobile phone.

Do all kinds of mobiles qualify for this kind of exemption?

HMRC makes a distinction between devices used primarily for communication purposes and what it classifies as mini-computers. Basic mobile phones and smartphones such as a Blackberry or an iPhone have been approved by HMRC.  Tablets and other similar mobile mini-computer type devices are not currently classified as mobile phones. This is the case even if they have the capacity for voice communication (e.g.: via mobile Skype or other VOIP service).  However, if such a device is an essential piece of business kit for you this can also qualify for a legitimate tax exemption under computer equipment provided by your company for business use.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Christmas party expenses

Christmas party expenses

As we’re now approaching the festive season thoughts are turning towards that well known annual corporate event, the Christmas Party. After working hard all year most people expect to have some kind of work function, whether it’s a slap up meal in a local restaurant or a full on party into the early hours. Even HMRC shows its approval for these type of events by providing a tax exemption to companies for the allowable costs of holding them.

Some Limited Company contractors believe that they are too small to benefit from this exemption, but this is not the case. For annual events like these, regardless of the size of the company, HMRC applies the same tax exemption rules. This means that even one-person  Limited Company contractors can be eligible to claim back tax on the cost of their Christmas functions through their own company. It is definitely worth claiming this too as it can effectively amount to paying only 80% of the total allowable expenses.

How do I know if my event is eligible for the exemption?

The exemption only applies to annually recurring events, but it doesn’t matter when the event occurs. It can be a summer party or a Christmas dinner, both could potentially be eligible. The allowance doesn’t apply to one-off non-business related staff events (like a staff day out) or to business entertaining – even if this occurs over the Christmas period! You can still enter expenses like this in your accounting books of course, but as these are not allowable expenses they will not reduce the company’s tax liability.

To be eligible the event must be:

  • available to employees generally  or
  • available to employees generally at one location, where the employer has more than one location.

In practice this means that the function cannot be for directors only, it must also include other staff or director’s guests. The good news is that HMRC’s rules defining director’s guests include your spouse or civil partner and the children of director’s or employees.

In terms of how much you can spend the rules are:

  • The maximum allowable spend per head is £150.
  • If employees are allowed to invite a partner or guest the allowable spend increases by a further £150 for each additional individual.

What happens if I hold more than one annual staff event?

If you annually hold two or more events throughout the year it can still be possible to take advantage of the exemption if the total combined cost of these events does not exceed £150 per head. HMRC will of course require records to be kept of the cost per head for each of the functions you have held during the relevant tax year. If your records show that the total combined costs are more than £150 per head then the costs of the function(s) which best use the £150 limit will be exempt while the costs of any additional functions will be treated entirely as a chargeable benefit.

If the expenses of a single function exceed the £150 per head limit the exemption will not apply and the total costs incurred will be taxable.

What should I include in the cost per head calculation?

To calculate your christmas party expenses you should include VAT, the cost of any transport used and also the costs of any overnight accommodation provided in order for employees to attend. These costs should then be divided by the total number of people who attended – including non-employee guests – to arrive at the cost per head. It’s vital to get these calculations right as HMRC apply the maximum amount strictly; even a penny over would mean that the exemption cannot be applied. If you’re in any doubt, speak to your Intouch accountant to help you calculate these figures.

Getting the most out of your business income is vital to ensuring you fully realise the financial benefits of all your hard work. At Intouch we have experienced contractor accountants and tax consultants who will keep you fully up to date with all applicable tax allowances and exemptions. This way you can be sure that you’re operating within HMRC rules while making the most of both your business and personal income.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.