Q: Can I claim my Christmas party business expenses?
Yes you can. HRMC provides a tax exemption, providing it is an annual reoccurring event. The maximum allowable spend per head is £150. If you would like partners of employees to be invited the allowable spend increases by a further £150 for each additional individual. More Information can be found in the Christmas Party Expenses Blog.
Q: What business expenses can you claim for?
Contracting through your own Limited Company allows each of the company’s employees to claim reasonable expenses.
A company can claim from a long list of expenses, but generally they must be “wholly, exclusively and necessarily for the purposes of the trade” in order to be allowable and you must have actually incurred the expense. Any expenses that have a personal benefit or can be seen to have dual purpose will often result in a benefit in kind charge, unless such use can be argued to be incidental.
The rules surrounding expenses are often subject to qualifying conditions so it is difficult to give a definitive list. The following general list should not be taken to be exhaustive and no responsibility is accepted for the eventual tax status of any claim.
- Employee wages — employees include any directors
- Contributions into employee private pension plans
- Up to £55 a week toward registered childcare — but be careful as this may affect any tax credit claims
- Business stationery and postage costs
- Subscriptions to professional bodies
- Technical books and journals required
- Business insurances
- Training costs incurred to upgrade current skills
- Use of home — a flat allowance of £4 a week can be claimed without receipts
- Accountancy fees
- Mileage, travel and subsistence
- Mobile phone bills if the contract is in the company name — if not, only identifiable business calls
- A broadband connection if private use is not significant and cannot be identified
- A computer, if your work requires one
- An eye test if you are required to use a computer screen
- Entertaining staff — up to £150 per head for an annual event such as a Christmas Party
- Company bank charges and interest
Q: What can you claim for when using your home as an office?
If you are purely using your home to carry out general administration tasks and do not have a specific room set aside for business use, the HMRC approved rate of £4 is the most suitable. You do not have to keep any records to back up your claims and any claim is unlikely to be challenged by HMRC.
Apportionment of costs
If you work from home on a fee earning basis and have a separate room set aside for the company, you could make a claim based upon the space used and the actual bills incurred. You must be able to show logical calculations and keep all invoices relating to the claim for the standard 7 years.
The following can be used to calculate the total cost:
- Council Tax
- Mortgage Interest
- Home insurance
- Internet line rental
- Telephone line rental and call costs
- Water rates
- Light and heating costs
The next step is to calculate the total floor space within your house, ignoring hallways, the bathroom and the kitchen and determine the proportion of the total space that is used by the business.
This amount should finally be adjusted for the actual hours in use. For example if you use the room for 8 hours out of a 24hour day the value should be reduced to 1/3 of the total (24 divided by 8).
We advise that you avoid claiming 100% business use of any space within your home, as it may have implications from a Capital Gains Tax point of view.
Q: What is considered a reasonable mileage claim?
HMRC issue guidance on what they consider to be the maximum “reasonable” rate of reimbursement and as a consequence any rate used to reimburse employees, that is lower than or equal to, HMRC’s statutory or recommended rate is not taxable as a benefit to the employee.
If the company provides the car but the employee pays for all fuel then fuel claims for business mileage can only be for the fuel itself and therefore will not include an element for other costs. Where the employee uses his own vehicle the allowable charge can include elements for wear and tear, tyres, and other running costs.
HMRC offer advisory guidance for fuel only rates of between 14p and 24p for petrol and 12p to 17p for diesel (effective from 1 June 2014). For employees own cars 45p for the first 10,000 miles and 25p per mile thereafter are the statutory maximum rates.
Q: What mileage can I claim?
Contracting through your own Limited Company gives you the opportunity to reduce your tax burden by allowing you to claim travel costs for your work related travel, subject to the rules below.
Employees are entitled to be reimbursed by their employers for business mileage costs that the employees have incurred personally. These reimbursed costs are deductible as expenses in the company. Provided the claim is not unreasonably high reimbursement is not taxable in the hands of the employee.
Q: What is a ‘benefit in kind’?
As a contractor who is a director and/or employee of their own company it is especially important for you to keep a clear line between personal and business expenses, many of which can be paid for by the Limited Company, but as a consequence of the company paying private expenses they will be treated as benefits in kind.
The term “benefit in kind” refers to the value of any extra benefits an employee enjoys by virtue of their employment. Common examples would include medical insurance, a company car, clothing (unless specialist protective clothing), computer equipment used privately and no/low interest loans.
The benefits and amounts are reported on a form P11D each year, with extra employer’s national insurance also being due. There is likely to be extra tax due from the employee that is disclosed on their Self Assessment Tax Return. Generally the taxable value is based upon the cost of providing the benefit, but for some benefits tables or formula are used to identify the “cost” of provision.
Q: How is private mileage calculated?
When fuel is made available for any private mileage an additional tax charge arises on this second benefit. The taxable benefit is calculated taking the percentage figure from the emissions calculation, and multiplying by £21,100 in 2013-14 increasing to £21,700 in 2014-15.
There are more detailed rules regarding company cars, which can be explained on request.
Q: How do you estimate the value of the company car benefit?
The value of the car benefit to an employee is based upon the CO2 emissions of the vehicle and the list price. Most cars fall within a range of 15%-35% of the list price being the assessable benefit cost per annum with higher emissions attracting a higher percentage.
Q: Is a company car tax efficient?
As a contractor using your own Limited Company to contract through, it may be more tax efficient for your business to purchase and maintain a vehicle or for you to own and run it personally. The best answer depends on questions such as; how many business miles you will drive in a year? And which car you have? Mini or Mercedes!
When a business purchases a vehicle it is as a benefit to a director and it is usual for the business to meet all running costs of insurance, road tax, repairs and servicing. The company may pay for fuel costs but this also has benefit in kind implications for the employee receiving the benefit, if any private mileage is paid for or is subsidised by the company.
Q: What are reasonable travel and subsistence expenses?
- Mileage to and from the client site can be claimed if you use your private car or motorcycle. You can of course also claim for taxi, bus, train and airfares. Parking and congestion charges can be claimed, but speeding or parking fines cannot.
- You can also claim the cost of your lunch, but ensure the cost is reasonable and that you keep receipts. Never claim round sum amounts as estimates, they could simply be disallowed in full by HMRC. You cannot claim the cost of buying ingredients at a supermarket and using them to take a packed lunch each day.
- If you take clients to lunch the cost will be deemed as entertaining, and while the company can pick up the bill it is not tax deductible. The only entertaining that will be allowable is staff entertainment under specific rules.
- If you’re staying away from home you can claim the cost of any accommodation, lunch and an evening meal. There is no set limit for an evening meal, but it must be reasonable. Intouch suggests £25 as a guideline. You can also claim £5 a night for incidental expenses that you don’t need to keep receipts for.
- If you start work early you can claim the cost of breakfast, unless it’s a regular occurrence.
- If you’re away for business reasons “longer term” you can claim the cost of renting accommodation, just bear in mind that you may have to prove it’s a cheaper alternative than a hotel of a reasonable standard.
- You will not be able to claim rent if the accommodation is your only accommodation (you need to have a separate home elsewhere).
Q: How the 24 month period is reset?
In order to reset the 24 Month Rule your journey needs to change substantially, it is not enough to simply move from one employer to another, or your travel to that location needs to drop to below 40% of your time over a running 24 month period. There is no strict legal definition of “substantially” in this case, so a common sense approach should be adopted.
HMRC class the square mile in London as one location for 24 month rule purposes, although this has been highlighted for review by the Office of Tax Simplification in their Interim Report.
If you are changing from an Umbrella company employee to a Limited Company employee with the same journey it is likely, although not yet tested in Court, that HMRC would view it as one overarching employment and thus disallow any motor and travel expenses upon review. You should think very carefully about making a claim if this applies to you.
The subtleties surrounding the 24 Month Rule are complex, so talk to your Intouch Client Manager if you are unsure.
Q: What are the 24 month rule claim limitations?
A contractor must not claim any travel expenses as soon as you know (or can anticipate) that you will be travelling to the same location for 24 months or more. For example if you sign a 24 Month contract you cannot claim anything in travel from day one. If you sign a 23 Month contract you can claim for that whole period, but nothing for the next month if you signed a further 1 Month contract (because at that point it would have crossed the 24 months).
Q: What subsistence expenses can I claim for?
Subsistence costs are considered by HMRC as being closely linked with business travel. So when an employee is away from home or his regular place of work he can claim for accommodation, food and drink.
If you’re staying away from home you can claim the cost of any accommodation, lunch and an evening meal. There is no set limit for an evening meal, but it must be reasonable. Intouch suggests £25 as a guideline figure. You can also claim £5 a night for incidental expenses that you don’t need to keep receipts for. If you start work early you can claim the cost of breakfast unless it’s a regular occurrence.
If you’re away for business reasons “longer term” you can claim the cost of renting accommodation, just bear in mind that you may have to prove it’s a cheaper alternative than a hotel of a reasonable standard.
There are detailed rules and some anti abuse criteria.
Q: How do I claim travel expenses?
Claiming travel and subsistence expenses as a contractor can be a minefield of uncertainty. As an employee of your own Personal Service Company, often based from home working away at different sites, there is clear guidance on what may and may not be claimed as travel and subsistence expenses, but the detail remains important. Contractors whose normal place of work may well be home are far more likely than permanent employees to encounter the detail of claiming for this type of expense.
The underlying principle for claiming business expenses is that they must have been incurred for business reasons in order to be allowable against the Company’s tax bill. There are specific rules that apply to what is deemed business travel and broadly they are as follows:
- Travelling from home to normal or regular place of work (say office) is NOT a business journey.
- Travel between two places of work is allowable
- Between home and a temporary workplace is allowable.
A temporary workplace is one you expect to be at for more than 40% of your available time, but for a total period not exceeding 24 months. If you spend less than 40% of your time at a site the 24 months test is not relevant.
Read more about the “24 month” rule and how it affects travelling expenses in our Travel Expenses Ebrief.
Q: What do I need to know about my wages?
Wages for all employees of a business are expenses that normally recur monthly and are set in advance. Wages, and the tax which is associated with them, can be paid by direct debit. Intouch advises all of its clients on the level of wages it thinks appropriate, but you finally decide on what level most suits you.
Wages paid in this way are subject to taxation (PAYE: Pay as you earn) and national insurance (NIC: National Insurance Contributions). We will tell you how much tax needs paying and when it is due by. We will also tell you how much money to pay yourself each month – just in case you forget.