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Expenses for limited company contractors

Paystream News

Kerry Hull

Tuesday 1st Oct, 2013

Working as a limited company contractor has a lot of advantages, but it does mean you're responsible for plenty of running costs. Fortunately, there are tax relief and allowances that can help you maximise your take home pay, as well as different expenses you can claim. But negotiating the HMRC labyrinth can be complicated, and it's easy to get confused over what you can and can’t claim. Here's our very brief guide to claiming expenses.

What's allowable?

Allowable expenses - those for which you can claim - are the ones you have to pay out to earn business profits. This means that anything you spend on items for personal or non-business use doesn't count. Among the common expenses claimed are accountancy fees, advertising, insurance, postage, safety gear and travel expenses, though this is by no means everything.

On top of this, you might be able to claim for larger 'capital items' - for example, if you're required to own equipment such as machinery - which will reduce your profits for the year.

Anything you spend on mixed purpose goods and services is classed as non-allowable expenditure. For example, if you travel to a client's site for work but do your weekly shop at the same time, it doesn't count.

However, if you can separate the two you can still claim for the business part. To use the same example, car expenses for business are allowable but your personal mileage is not.

Travel and mileage

For many contractors, by far the most important expense to be claimed is mileage. As a self-employed worker, you can claim all travel expenses to and from your temporary place of work.

Significantly, you can only claim as long as you expect to work at that location for no more than two years. If you've been working on a contract for 20 months and it is then extended for another six, you stop being eligible to claim mileage expenses from the minute you find out you'll be spending more than 24 months in one place.

That said, if you spend less than 40 per cent of your typical working week in any one place, you can keep claiming travel costs for regardless of how long you stay there.

The amount you can claim will depend on how you calculate your allowance. While you are free to keep your receipts and calculate your actual expenses, many contractors choose to go by the flat price per mile set down by the taxman for the sake of simplicity.

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