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Expenses for limited company contractors

Arif Patel

Arif Patel | Accountancy & Tax Service Director

Wednesday 19th Feb, 2020

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 computer equipment - which will reduce your profits for the year.

Anything you spend which can have a dual purpose is classed as non-allowable expenditure. For example, if you purchase clothing which is general business attire it would not be allowable as this clothing may have other non-work related use.

However, if you can separate the two you can still claim for the costs exclusive to the business. To use the same example, clothing which is required in your business for health and safety purposes would be allowable.


Travel and mileage

For many contractors, by far the most regular expense claimed is mileage. As a temporary worker, you can normally 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 for mileage is 45 pence per mile for the first 10,000 miles in a tax year and 25 pence per mile thereafter. This rate is an approved mileage rate set by HMRC, the rate covers all car related costs such as fuel, insurance, servicing etc. So your other car related costs cannot be claimed in addition to the mileage rate.

Have we managed to answer your limited company question in this blog? If not, you can always give us a call on 0161 929 6000 and you'll be put through to one of our advisers who will be happy to discuss your queries in more detail.

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