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Contractor expenses are very simple to claim if you’re a limited company contractor working outside of IR35. If you are working inside IR35, the list of what you can claim is a little shorter (an accountant can help you with this).
HMRC’s rules state that expenses can be claimed to provide they are wholly and exclusively for the purposes of your business.
Remember: You must be able to provide evidence you actually incurred the expenses if HMRC ever asked you. This is usually achieved by keeping receipts.
Our contractor expenses frequently asked questions hub will answer the most commonly asked questions about contractor expenses.
One of the most common expenses to claim as a contractor is for travel. The 24-month rule allows travel from home to a qualifying workplace for up to 24 months. A qualifying workplace assumes the workplace passes a basic ‘temporary workplace’ test. Such as:
The 24th month is calculated from when you first start travelling to your clients’ premises from either your home or office, until the end of the contract if it is less than 24 months or until you have reason to believe your contract may last over 24 months.
For example, if you were to start a new contract with a different department but your end client remained the same, the 24-month rule does not restart with the new department you are working in, it continues to run from when the first contract was started with the client.
If the original was for 12 months and then you were offered another contract for 14 months to run simultaneously, which you accepted you would not be able to claim travel expenses from the point you knew your time at your client’s site will exceed 24 months.
The 24-month rule goes hand in hand with the 40% rule. It’s not uncommon for a contractor to return to the same workplace but on a different contract within a 24 month period. The 40% rule means that as long as that premises has been your workplace for less than 40% of the time between the original contract start date and the new contract start date travel expenses can be claimed and can be continued to be claimed until the time spent at the workplace exceeds either 24 months or 40%.
As a limited company contractor working outside IR35, you can claim expenses for a Christmas party.
Your Christmas party will be considered an annual event. An annual event is an allowable expense and is also treated as a tax-free benefit as long as you meet certain conditions such as:
The £150 a head allowance can be used at any time of the year and across multiple events, though it is recommended that you just have one event to make it simple to calculate the £150 per head allowance. If you do decide to have more than one event in the year, for example, a summer barbecue, you may need to justify to HMRC that they are annual events and not just a night with your employees.
You can claim expenses for entertaining clients. However, unlike an annual event, they will not be a tax-free benefit, as there is no Corporation Tax relief on entertaining. Although by claiming these costs as expenses through your company you will not be paying out of your taxed income or personally paying the costs.
Similar to any expense the cost needs to be reasonable and justified.
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Appointing an accountant can save you time and stress when starting up on your own. If you would like to speak to someone about any of the above information or any other queries you may have, arrange a callback and a member of the team will be in touch.
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