Refer us a friend today and receive 100 EXPENSES GUIDELINE

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1 Refer us a friend today and receive 100 EXPENSES GUIDELINE

2 CONTENTS Limited company expense guidelines 1 Business Expenses 2 Salaries 2 Travel and Subsistence Expenses 2 Business Mileage 3 Company Car 3 Vans 4 Subsistence 4 Business Entertainment 5 Christmas Party / Annual Event 5 Telephones and Internet 6 Professional Subscriptions 6 General Office Purchases 6 Training 6 Reference Books and Journals 6 Eyesight Tests 6 Use of Home as an Office 7 Rent and relocation 7 Equipment Purchases 7 Childcare vouchers 7 Pension contributions 9 Insurances 9 Medical insurance 9 Charity donations 9 Accountancy fees 9 Expense Items that cannot be claimed 10 Why choose Sipher Accounting & Tax? 11 Which package is best for you? 12 Bronze Package 12 Silver Package 12 Gold Package 12 Annex 1 13

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4 LIMITED COMPANY EXPENSE GUIDELINES The only expenses that can be claimed from a company are legitimate business expenses. HMRC will only allow expenses that are 'wholly, exclusively and necessarily incurred in the performance of your duties. Typical examples of allowable expenses: Salaries Employer s National Insurance Employer s Pension contributions Business travelling Accommodation while away from home on business Subsistence whilst working away from home Lunch while working away Accountancy fees Mobile costs Postage and stationery Home office expenses Business computer equipment and cost Internet Business computer equipment and software costs Technical books and publications Staff entertainment Subscription to approved professional bodies Bank charges HMRC will disallow any expenses that do not meet this rule and do not fulfil each of the three criteria wholly, exclusively and necessarily. It is essential to obtain and retain receipts for all expenses incurred in order to be able to justify the expense if questioned by HMRC. Our guidance has focused on areas which are more relevant to contractors and small business owners. Page 1

5 BUSINESS EXPENSES SALARIES As a company director and an employee of the company you can choose a salary package. The salary and employers national insurance are deductible expense in computing your profit. If the contract is not caught by IR35 regulations then you are free to pay whatever salaries you wish. Based on personal preference, some clients choose a salary package of 7,956 per annum (national insurance limit) whereas others choose a salary package which corresponds to the National Minimum Wage (NMW) currently set at 6.31 per hour or around 12,000 per annum. Generally, paying a salary of 7,956 per annum will save 801 per annum in personal tax compare to NMW salary. TRAVEL AND SUBSISTENCE EXPENSES GENERAL Determining whether travel and subsistence expenses are allowable is a complex area but generally you can claim expenses incurred for all legitimate business journeys including travel to a temporary workplace. This means you can claim the costs of travel from your home to your client site so long as this site remains a temporary workplace. This is a considerable difference from employees in a permanent job, as travel to their place of work would be regarded by HMRC as ordinary commuting and therefore not an allowable expense. TEMPORARY WORKPLACE A temporary workplace is defined as a workplace where you go to perform a task of limited duration or for a temporary purpose. A temporary work place ceases to be a 'temporary' workplace if you attend it for a period of continuous work that lasts, or is likely to last, more than 24 months. This means as soon as you know from the outset that you will be at a workplace for 24 months or more then travel and subsistence cannot be claimed. Example: If you sign a twelve month contract at a new location then you should be able to claim travelling costs involved. However if at the end of that twelve month period you extend it for further twelve months then at that stage you are continuously at the site for 24 months and your claim to travelling should cease when you sign the contract. Page 2

6 BUSINESS MILEAGE If you use your own vehicle for business travel you can claim the rates set out in the table below. Vehicle Rate Per Mile (On first 10,000 miles in tax year) Rate Per Mile (On each mile over 10,000 miles) Cars and Vans 45p 25p Motorbikes 24p 24p Cycle 20p 20p Note: Total business mileage relates to each individual tax year and includes mileage claimed in previous employments in the same tax year. With regards to the cycling scheme, if you own the bicycle yourself, you can claim mileage of 20p per mile. With the cycle to work scheme there is no necessity for you to actually pay anything for the use of the company s bike. The company can purchase the bicycle and the safety equipment and it would be treated as a company asset. The employer can then loan the bicycle free of charge to the employees as a tax free benefit. The upper limit to the cost of your bicycle and safety equipment is COMPANY CAR A company car purchased for private use carry a benefit charge at 10% minimum provided the CO2 emissions of the car is below 95 g/km. There is no benefit tax payable on zero emission cars. The user will also be paying a fuel charge and the company will pay Class 1A National Insurance for any fuel covered by the company. As an illustration here are few examples of cars and the benefit charge: Car Engine Fuel CO2 (g/km) Benefit Tax at 20% Tax at 40% Tax at 50% Toyota Prius 1.8 Hybrid 89 10% ,089 VW Golf Plus 1.6 Diesel % 706 1,411 1,764 BMW 3 series 1.6 Petrol % 972 1,944 2,430 Page 3

7 VANS Company vans are cheaper to operate and the yearly benefit is only 581 per annum. SUBSISTENCE Subsistence may be claimed when on a business journey or for an employee on a temporary assignment whose place of work is not the permanent place of work e.g. a contractor. However, for contractors working through their own limited companies it is advisable to claim the actual receipted cost of the meal rather than the round sum allowance. Tax deductible subsistence payments cease under the 24 month rule when it is known that the length of the contract will exceed 24 months. HMRC has introduced an advisory system of benchmark scale rates as follow: Breakfast rate (irregular early starters only) - A rate of up to 5.00 may be paid where a worker leaves home earlier than usual and before 6.00 am and incurs a cost on breakfast taken away from his home. If the employee regularly leaves home before 6.00 am because, for example, he works an early shift he would not be entitled to use the breakfast benchmark scale rate. One meal rate (Five hour rate) - A rate of up to 5.00 may be paid where the worker has been away from his home/normal place of work for a period of at least five hours and has incurred a cost on a meal. Two meal rate (Ten hour rate) - A rate of up to may be paid where the worker has been away from his home/normal place of work for a period of at least ten hours and has incurred a cost on a meal or meals. Late evening meal rate (irregular late finishers only) - A rate of up to may be paid where the employee has to work later than usual, finishes work after 8.00 pm having worked his normal day and has to buy a meal which he would usually have at home. If the employee is paid an allowance under the five or ten hour rule, the late meal allowance could still be paid if he finishes work after 8.00 pm and buys a meal that he would usually have at home. However, if the employee regularly finishes work late because, for example, he normally works the afternoon or evening shift, he would not be entitled to use the late evening meal rate. Page 4

8 BUSINESS ENTERTAINMENT Business entertaining expenses are always disallowed in the company's accounts as a deduction for Corporation Tax. A director s travel and entertaining expenses is more likely to bring attention and scrutiny by HMRC since it has the most potential for abuse. The cost of entertaining staff or colleagues in the same organisation is not considered bona fide business entertaining. However, the company will be paying Class 1b National Insurance and the tax due on the employee according to their tax rate. CHRISTMAS PARTY / ANNUAL EVENT The cost of the Christmas party is an allowable business expense provided that the cost is not over 150 per head and provided all staff is invited. Page 5

9 TELEPHONES AND INTERNET HOME TELEPHONE You can claim the cost of the business calls only. You cannot claim the cost of rental as this will be treated as a benefit-in-kind on which you will pay tax. If you wish to claim rental then install a second line but make sure the account is in the company name and is paid for by the company. MOBILE If the account is in the company name and company pays the bill then there is no taxable benefit for a mobile phone. If the account is in personal name then you can claim the cost of business calls only. INTERNET If the account is in the company name and any private use is not significant then there is no taxable benefit for internet usage. If the account is personal name and available to the whole family, then it cannot be claimed. PROFESSIONAL SUBSCRIPTIONS Claims for subscriptions to professional bodies relevant to your employment are permitted. This is restricted to certain professional bodies approved by HMRC. Subscriptions where the activities of that professional body are not directly relevant to the employment are specifically disallowed. GENERAL OFFICE PURCHASES The actual cost of office stationery, postage and computer consumables which is used wholly, exclusively and necessarily in the performance of your duties. Please retain receipts. TRAINING The cost of training courses provided should relate to the duties and wholly exclusively and necessary to your business only. This includes travelling and hotel accommodation. REFERENCE BOOKS AND JOURNALS Reference books and journals provided these relate to the duties of your employment. EYESIGHT TESTS The cost of an eyesight test, if it is necessary for the initial or continued use of visual display equipment in your duties, will be allowed. The cost of spectacles cannot be claimed. Page 6

10 USE OF HOME AS AN OFFICE HMRC has specifically allowed a claim of 4 (exclusive of the cost of business telephone calls) each week without having to justify that figure. RENT AND RELOCATION If you are actually moving house and the new home will be your private principle residence, then you will not be able to claim rent as business expense. While lodging (e.g. money paid to hotel for business trip) is allowable for corporation tax purposes, HMRC does not agree dwelling as solely, exclusively and necessary for your business as you will need a place to live regardless of your business activity. You can claim relocation expenses of up to 8,000 for the cost incurred as a result of your move providing the qualifying conditions are met. Please note that this is not an allowance and you can only claim the actual costs with supporting receipts. If you are renting a second accommodation purely because of your company s activities and you will regularly return to your main residence where you pay for all the bills; then the rent will be considered a business expense. EQUIPMENT PURCHASES The cost of equipment purchased to carry out the duties of your employment. This would include computers, printers, software, and other peripherals. These purchases can be made personally but the invoice should be in the company s name. CHILDCARE VOUCHERS Childcare vouchers can be paid from employers to employees who have at least one child in the care of a registered child care provider. You can claim up to 55 per week ( 243 per month) without incurring tax and NICs and it is not reportable to HMRC. Amounts over the 55per week threshold will be deemed as a benefit-in-kind. There are two ways child-minder costs can be setup: A- VOUCHERS Your company can sign up with a childcare provider such as Kiddicare Vouchers for the administration of your childcare costs. Your company will pay 243 per month to Kiddicare and they will issue vouchers directly to your child-minder who can then cash these. Kiddicare will charge an administration cost of typically 2% to 5% to administer the vouchers. Page 7

11 B- DIRECT AGREEMENT A simple contract will be signed between your company and the child-minder. A copy of the contract is available in Annex. To qualify you must meet the following conditions: Childcare vouchers must be used by approved childcare providers; The child or step child must live with you; The child or step child must be yours; The costs can be paid up to their 15th birthday; Child carer should not be related to you unless they run the childcare business. Tax benefits: If the limited company is paying childcare costs for two employees (i.e. husband & wife), the maximum childcare cost payable is: 2 employees x 243 per month x 12 = 5,832 Corporation tax savings = 5,832 x 20% = 1,166 Page 8

12 PENSION CONTRIBUTIONS Your limited company can pay 40,000 per annum in your personal pension plan. Please contact a local IFA if you would like to start your company pension. The pension is a tax deductible expense for your company and will generate a tax saving of 8,000. If you are a higher rate tax payer then the tax savings are no different to paying it personally. Please also note that the pensions are not based on your salary and you can make the whole 40,000 per annum gross contributions, if you like. INSURANCES The types of business insurances are as follows: EMPLOYER S LIABILITY INSURANCE If your business has more than one employee then, by law, you need an employer s liability insurance to cover any claims made by the employees for personal injury etc. This cover is not required if you own at least 50% of your company and you are the only employee. PUBLIC LIABILITY INSURANCE You will require public liability insurance against claims made from third parties who may sue you if they have suffered from your actions. PROFESSIONAL INDEMNITY INSURANCE You will require professional indemnity insurance to insure against claims made against you for causing financial loss to your clients as a result of your errors or negligence. MEDICAL INSURANCE Although your company can pay for your medical and dentist insurance, this will be a P11d benefit on employee s earnings over 8,500. The company will pay 13.8% Class 1A national insurance and the benefit will be part of your tax return where the tax payer will pay tax accordingly. CHARITY DONATIONS The company can make charity donations to their favourite charity for the purpose of the trade. If the donations made are over 2,000 this has to be disclosed in the yearly financial statements explaining the charity name and the purpose for making the donation. The director or an employee should not benefit directly from the charity donation otherwise it will be disallowed for corporation tax. ACCOUNTANCY FEES Accountancy fees are an allowable expense in computing your corporation tax calculations. Page 9

13 EXPENSE ITEMS THAT CANNOT BE CLAIMED Expense items that cannot be claimed include the following: Office clothing such as business suits (except safety clothing); Spectacles; Car service and repairs; Training Courses not related to your employment - e.g. plumber, claiming skiing instruction, and degree courses; Private club subscriptions - e.g. Golf Club membership; Items mainly for personal use - e.g. televisions, cameras, Sat Nav; Rent, mortgage and council tax of your main residence. Please remember business expenses should only relate directly to your business. Personal expenses that do not wholly relate to the business of your company should not be claimed. The purpose of this guide is only to give guidance and example of the type of business expenses one can claim. It is not a comprehensive list of all the expenses one can claim and it should be used as a general guidance only. Please note that as long as an expense is wholly, exclusively and necessary for the business, it can be claimed as business expense. Page 10

14 WHY CHOOSE SIPHER ACCOUNTING & TAX? London based Chartered Certified Accountants and Auditors Experience of over 15 years in the UK market Dedicated Accounts Manager Sipher Accounting & Tax contractor accountancy services offers: Free Limited Company set-up Free access to online accounting software on the Silver package Unlimited direct access to your Accounts Manager via , telephone and mobile Free RTI payroll for you Fixed fees per month with no hidden costs Free setup cost when moving from other accountants (does not include accounts preparation) Free references on Silver and Gold package Page 11

15 WHICH PACKAGE IS BEST FOR YOU? BRONZE PACKAGE 70* Possess some fundamental accounting knowledge; Adequate knowledge of Microsoft Excel; Manual invoicing; Receive management accounting information on a quarterly basis; Issued Dividend vouchers on a quarterly basis. SILVER PACKAGE 85* Willing to learn IRIS, a cloud based bookkeeping software; Always kept informed with up-to-date accounting information; Instant dividend vouchers available online; Unlimited mortgage, tenancy references, upon request (normally 25 per letter); Reference letters for Homeoffice, Foreign Embassies, upon request (normally 50 per letter); Tax payable and retained profit information available. GOLD PACKAGE 95* Everything as per the Silver Package above plus: Two people payroll; Two personal tax returns (husband and wife, boyfriend and girlfriend); Finalisation of year end accounts within 3 months of financial year end (standard fees 250). *Our prices are paid net of VAT. Prices are fixed till Dec Page 12

16 ANNEX 1 EXAMPLE OF AN EMPLOYER S LETTER TO A CHILDCARE PROVIDER LittleBees Daycare Nursery 1 Tree Hill London Dear sir, I agree to purchase childcare from you to the value of 55 per week from 6 April I intend to give the childcare as a benefit to my employee John Smith for use by his daughter, Jane. This agreement may be amended or cancelled if John leaves my employment. Yours faithfully, John James John & John Ltd Page 13

17 Sipher Accounting & Tax Chartered Certified Accountants & Business Advisers Office address: Suite 512, Citibase Stratford, Citigate House, Romford Road, London E7 9HZ Phone number: Website: All pictures used in this material are courtesy of