What is a business expense?
A business expense is a cost that has been incurred wholly, exclusively and necessarily for business purposes and through claiming such costs as an expense you will reduce your taxable profit at the end of the year, meaning you pay less tax. You can’t claim for expenses which have a dual purpose (i.e. for both personal and business use).
You may incur some expenses which you pay for yourself i.e. with cash. These are known as ‘out of pocket expenses’. You can either pay for these with your own money and then your company will reimburse you or pay for the expenses directly from your business bank account.
What expenses can I claim working through my own limited company?
If you are working through your own limited company and are outside IR35, life is very simple. HM Revenue and Customs state that expenses can be claimed provided they are wholly and exclusively for the purposes of your business. This means you can claim costs like company formation fees, accountancy fees, business travel and accommodation, postage, stationery, telephone calls, employer’s National Insurance contributions, subscriptions, insurance, contributions to an executive pension plan and business entertainment.
What is a valid business expense?
There are certain allowable expenses for a contract which falls outside IR35, including the following:
You can claim meal costs whilst you are working at a remote site, away from your normal place of work, or when staying away from home overnight.
You can claim the cost of travel to and from your temporary place of work. Mileage rates are 45p per mile for the first 10,000 miles in any tax year and then 25p per mile thereafter. This allowance is to cover fuel and running costs of the vehicle. If you are travelling to work as a passenger in a car you are entitled to claim 5p per mile. You can also claim for parking and the congestion charges, but you may not claim for parking fines or speeding fines. The cost of travel by public transport can be claimed with a valid receipt. A mileage allowance can also be claimed for travel by motorcycle and bicycle at rates of 24p per mile and 20p per mile respectively.
If you are working away from home, your accommodation costs can be claimed as an expense, as can the reasonable cost of additional meals you have taken in conjunction with overnight accommodation. There are no set allowances for this, but the cost must be deemed to be ‘reasonable’; this also applies to the cost of meals.
Office wear such as shirts, blouses, trousers, skirts and suits would not normally be reclaimable as an expense. The only exception to this might be if the clothing was uniform or protective clothing. The clothing can’t be claimed as a uniform simply because all workers are required the wear this type of clothing, the test would be if someone wearing the clothing would be recognisable in the street as wearing a uniform, such as a fire fighter or a nurse. If such work clothing were to be provided, it would constitute a benefit in kind and as such would be subject to additional income tax and NICs.
Providing that the training course is wholly and exclusively relevant to the performance of your duties under your existing contract then you can claim this as an expense.
You might have costs that you incurred prior to setting up your Limited company, for example travelling to meet a potential client, phone bills or equipment costs. Provided that the expense was incurred a for the business then this would be reclaimable.
There are many other expenses you may wish to claim – for more information please contact Sidekick who will be happy to help.