Contractor Expenses mystery solved
Despite a depressed economy, contracting remains an attractive option according to the Recruitment and Employment Confederation (REC) which revealed that 26% of employers plan to expand their workforce with contractors, freelancers and consultants in the coming three to twelve months.
With all these new contractors a popular subject always recurs – how do expenses work and what can I claim.
Most contractors know working through your own Limited company is the most tax efficient way of contracting, but there is a certain level of mystery around expenses. However, if contractors remember just one thing things are far clearer – providing the expenses are ‘wholly and exclusively for the purpose of running your business’ and supported by a receipt you really can’t go too far wrong.
The most common contractor expenses that can be claimed, for those working outside of IR35, are:
Company formation fees, accountancy fees, business traveling (obeying the two year rule, see below), postage, stationery, office supplies, business telephone calls, salaries paid by the Company, employers NI Contributions, contributions to a pension plan, either a mileage allowance or the costs of running a car (if the car is owned by the Company, there will be a benefit in kind charge), computer software, technical books and journals subscriptions (in most cases) and use of home office (see below for more details about this).
For those contracting inside of IR35, you are slightly more limited however you can still claim contractor expenses on the following: administration expenses which are fixed at 5% of your contract income, travel and accommodation expenses, pension contributions and some professional subscriptions.
The two year rule (or 24 month rule) and expenses – if you are based from home means you can of course claim your travelling expenses to and from your clients offices. However, if you work at the same location for longer than 24 months, you aren’t able to claim travel expenses.
HM Revenue and Customs also state, that if you know from the very beginning that the contract will last for more than 24 months and you will be mainly working from one location you shouldn’t be claiming the expense. But as very few contracts are initially written for longer than 24 months this part of the regulation shouldn’t affect too many contractors.
Working from home expense – If you work from home you can claim ‘use of home as office’, HMRC have introduced a new monthly amount of £18 per month = £216 per year or £4 per week = £208 per year, which is handy.
To support contractors, SJD Accountancy has developed a comprehensive Contractors Guide to Expenses which can be downloaded for free on their website.
If you have any questions about contracting or would like any further advice please contact our New business team on 01442 275789 or email firstname.lastname@example.org.