Introduction to expenses One of the most common questions we get asked is what expenses can I claim through my limited company?

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1 Guide to Expenses

2 Introduction to expenses One of the most common questions we get asked is what expenses can I claim through my limited company? A limited company is not a panacea for claiming in all manner of expenses and HMRC has a manual over 100 pages in length describing what they define as allowable expenses. The basic premise is that any expense incurred wholly and exclusively for the purpose of carrying on the business will generally be allowable as expense that is capable of getting tax relief. Keeping track of expenses is one of the chores of running your own limited company. You ll rack up a long list of expenses from paper clips and pens to building rents and salaries. As a director you need to know what you have to account for, how to do it, and what expenditure you re entitled to claim back. Dual Purpose expenses As you go through the allowable expenses in this document, you will come across reference to duality of purpose. What this means in practice is that if any expense has a taint of personal benefit then the expense will be disallowed as it isn t wholly for the purpose of the trade but has another, personal benefit. This is why, for example, the cost of clothing or popping into see a business contact while enjoying a holiday are disallowed. Tax relief on expenses? Companies are taxed on their profit. Tax relief means that your company can deduct the expense from its revenues in determining the profit for tax purposes. As you will see, some expenses can be paid for by a company but not allowed to reduce the profit for tax purposes. Dividends are not expenses, they are extractions of profit after taxation. Record Keeping In order to get the tax treatment you need, you need to keep accurate records. You re also legally required to keep company records for six years after their respective financial year-end, and HMRC can impose fines of 3,000 even during this period. Claiming limited company expenses Your company s expenses can be paid in two ways, directly from the company account or as a reimbursed expense when paid for by a director or employee personally using your own debit/credit cards or cash. With regards to reimbursed expenditure, directors can refund themselves at any time from the company bank account but must keep receipts to justify the expenditure. The rule of thumb when claiming for expenses is that you can only claim within HMRC s parameters, which define allowable expenses as being wholly and exclusively incurred in the performance of your duties.

3 Travel & subsistence Generally, HMRC only allows travel costs for employees who move between destinations during work, and not for those journeying to and from work. If you have worked for an umbrella company you may be familiar with a 5 or higher daily allowance for subsistence where no receipt is allowed. When running a limited company receipts for subsistence must be retained and only receipted costs claimed. The 24 month rule Travel expenses are allowable if you are traveling to a temporary workplace. HMRC defines a temporary workplace as temporary if you do not expect to be there for more than 24 months. According to HMRC, it ceases to be a temporary workplace if it is known it will be, or develops to be a place of continuous work for over 24 months. Note that a temporary workplace stops qualifying from the moment you know or reasonably expect to be at the workplace for more than 24 months, not when the duration of work reaches 24 months. Meals, tolls, congestion charges and parking fees can all be claimed for under travel and subsistence. The second part of the test for a place of work to be classed as temporary is that there must be a reasonable expectation of further work, at a different location, but still as an employee of your own limited company.

4 Company cars Generally, a company car provided for an employee or director involving any significant personal use creates a benefit-in-kind for the employee or director. The BIK for company cars are based on the list price of a brand new vehicle (irrespective of whether the vehicle acquired is brand new) and its carbon dioxide emissions. If a car is leased by the company, the full cost of leasing it is allowable as a company expense but the employee or director is taxed personally. Note that most Benefit s In Kind will attract National Insurance of 13.8%. Mileage Claims If you use your personal vehicle (car) for business travel you can claim the following rates without challenge by HMRC: 0.45 per mile up to 10,000 miles 0.25 per mile thereafter Company motorcycles There are no special rules for company motorcycles. If the use of the motorcycle is solely for business use and any personal use is incidental, then there will be no benefit -in-kind charge to the individual as long as the individual pays the company for all and any personal use. If your private motorcycle is used for travel then mileage can be claimed at 0.20 per mile without issue. Business Travel Air fares, trains and ferries can also be claimed under business travel. Tolls, congestion charges and parking fees are all allowable expenses. However, parking fines receive no tax relief.

5 Salaries A salary paid to you as an employee or as the director of your company is regarded as an allowable expense, as are any National Insurance contributions. Providing you fall outside of IR35 legislation and have no contract of employment between yourself as the director and your company, you may choose the level of your salary. To put it simply, IR35 is used to determine whether you are employed by your client or providing self-employed contracting services through your limited company. You may pay a tax-efficient salary up to the National Insurance threshold, i.e. before you become liable to start paying contributions. You will save money by paying the lower monthly salary because after you cross the threshold you will have to begin paying NICs. Mobile phones, telephones and internet Your company can provide a mobile phone for your use without creating a benefit-in-kind, however, it cannot get relief for paying your mobile phone contract unless the contract is in the company s name. If that is the case, then the personal use is irrelevant and the company gets full tax relief and you are not subject to a benefit-in-kind. With regards to the internet, if the rental is set up in the company s name and there is no significant personal use then there are no taxable benefits. However, if the line is set up under your personal name then you can only charge a portion of the cost to business use.

6 Accountancy fees You can claim relief for the full cost of your company s accountancy fee, providing their professional time is being spent working on your company s accounts and not your own personal accounts. If they do provide paid advice or time working on your personal accounts this will be taxable and need to be recorded as a benefit in kind. Accommodation whilst on business travel Full tax relief can be claimed on accommodation used when traveling for business-related purposes, providing the expense is reasonable and not excessive. HMRC will likely question the necessity for you to stay in luxury 5 star accommodation. However, there may be a justification for doing just that but we recommend you follow a more conservative approach. We think the more reasonable your expenses are, the less likely they are to be challenged by HMRC. Lunch is reclaimable whilst on business travel if you exceed five working hours, this cover extends to dinner if you are working for ten hours. Can I claim rent as a business expense? You can claim rent if you are staying away from home e.g. renting a flat in town during the week and returning to a residence that you own elsewhere at weekends.

7 The use of your home as an office If it is necessary for you to work at home and not just for conducting additional work outside of the office, then you are entitled to 4 a week cover without having to report it to HMRC. However, if you exceed the prescribed limit, your claim may come under scrutiny by HMRC, so we recommend that you only make one if it s absolutely necessary. When claiming you will need to provide proof of a fully functional and exclusively designated work space, and that you actually use this work space for your business. Because your house is used as both a business and personal space, it s practically impossible to calculate how much gas, electricity and insurance cover your business area consumes. Beware of losing your PPR Be careful if you do go through the rigorous exercise of defining how much of your residence is your home office. Aside from paying business rates you will lose Principle Private Residence Relief on that part of your house which is your home office. You have to make a genuine and proportionate estimate with regards to what s actually being used for business purposes. For example, a four room house in which one room is designated to your work will usually allow you to claim a quarter of the total relevant expenses, as long as a lease agreement has been arranged between you and your company for your company to rent the office from you. If you work from home and are the company s only staff member you can claim a proportion of your council tax cost. However, depending on how much you use your home for business, you may have to pay business rates rather than council tax.

8 General office purchases Minor purchases with receipts that are used wholly and exclusively and necessarily in the performance of your duties are claimable. This includes postage, computer consumables and office stationery. Gifts A gift to an employee may be treated as a benefit-in-kind and taxed accordingly, unless it is considered a trivial gift. A gift to someone outside of the company that doesn t consist of food, drink, tobacco or vouchers and is under 50 per annum does qualify for tax relief. Medical insurance Your company may provide financial support towards medical insurance for employees. However, unless it is part of their one free check a year, it will be regarded as a benefit in kind and your company will be liable to National Insurance at 13.8%. Pensions Once your company has set up a contract with a pension provider it can provide payments to your pension and receive 100% tax relief as an allowable business expense. There is a no limit to how much you can contribute to pensions through your company. HMRC may however challenge excessive pension contributions. Professional subscriptions Claims to certain HMRC approved professional bodies which are relevant to your employment are allowed. If it is not directly relevant then it is strictly prohibited. Office Equipment The cost of anything that is necessary and essential for your duties as a director will receive tax relief. This covers computers, printers and software. You may also claim reasonable relief towards the cost of equipping/furnishing an office, e.g. chairs, bookcase. This may appear to hold a dual purpose, but it is allowed because it is a consequence of a business necessity. Provided your personal use is insignificant it will not be treated as a benefit-in-kind and you will not have to pay National Insurance or income tax on it.

9 Staff Entertaining You are entitled to entertain staff, most commonly a Winter party, as a tax-free benefit, providing you meet certain conditions. You may invite a partner but you must not exceed expenditure of 150 per head (including VAT). The event must cater mainly for staff. For example, expenses for one director and a plus one would be acceptable and would give you a budget of 300. However, if the attendants are not mainly employees then it would be difficult to argue the event s main purpose is to entertain staff. Note that the 150 budget is not an allowance and if you spend a penny more, the whole amount is not deductible. Entertainment of customers or suppliers Business entertainment is not an allowable expense and all claims for entertainment will be taxed. The company can still cover the costs but this will be added back to its profits before Corporation Tax is calculated. The effect of disallowable expenses is to decrease the reserves that can be paid out as dividends. Clothing Clothing may not usually be claimed as a tax deductible expense because it has a dual purpose. So if your business is PR, for example, and it is necessary to attend formal functions, your new outfit is not deductible. The exception to the rule is safety clothing and uniforms.

10 Eyesight tests & spectacles You can claim for vision tests providing it is necessary for the initial or continued use of visual display equipment in your duties. However, you are unable to claim for glasses as they offer a dual purpose and are not exclusively related to business use, unless they are prescribed during your time at work for visual display. Company formation fees Any necessary preliminary costs to running your company can be claimed back the same as if they were incurred now you re trading. This covers all the relevant expenses, anything from printing to supplying the necessary equipment for your company. Any accountancy fees or mandatory formations costs you paid can also be claimed. Charitable donations Donations made to a registered charity, providing they are wholly and exclusively for the purpose of trade, will grant you tax relief on your company s taxable income. You can still receive some relief even if the purpose is not trade related. Childcare vouchers If pay is within the basic rate band you are able to provide each employee with up to 243 per month in childcare vouchers which will get tax relief, providing the employee meets certain conditions. For higher rate tax earners the amount is 124 per month and additional rate tax payers it is 110 per month. There are two ways in which you can allocate payment: by direct agreement with a childcare provider, or through a voucher scheme. If you decide to go through a direct channel, you will need a letter between you and the provider confirming the amount you intend on paying. A child is eligible up to his or her 15th birthday (16th if disabled). In order to qualify for childcare you or your employer must meet the subsequent conditions: Must have the child/stepchild living with you Be the one providing the maintenance costs for the child Use a registered carer. You cannot use a relative as a carer unless they run a childcare business and are looking after other children also