Published:
Just like any business, a contractor is able to claim on their expenses and in turn save money when it comes time to file their tax return. Expenses can be deducted from a contractor’s income so they are only taxed on their profits. The challenge, however, is to know exactly what counts as a business expense. The first thing to note when planning for claiming expenses is the value in setting up a limited company for your contracting work. Working under the name of a limited company affords additional benefits when it comes to calculating one’s business expenses. Secondly, you cannot claim expenses for things that serve a dual purpose – it has to be an exclusive business-related cost. Instead, contractors’ main expenses will be things like travel, accommodation, training, insurance and various technologies. Travel and Accommodation The life of a contractor often involves working for a company while a certain project or task is completed. This can mean regular long drives, taxi fares, train rides or flights to a temporary workplace, as well as hotel or rented accommodation if necessary – all of these costs can be claimed back as expenses. https://www.gov.uk/tax-relief-for-employees/travel-and-overnight-expenses Importantly, HMRC will only count a temporary workplace as somewhere a contractor is working for up to 24 months. Up until this two-year period, expenses can be claimed on the cost of getting to and from a contractor’s place of work. For example, if a contractor is using his or her own car, HMRC will allow them to claim back 45p per mile for the first 10,000 miles they travel, and 25p thereafter – contractors can also claim for the cost of parking near the temporary workplace. The cost of other modes of transport can also be reclaimed. For contractors who work from home, meanwhile, there is the option to get money back on their home office costs. HMRC allows sole traders to claim back on the costs of rent or mortgages as well as utilities such as electricity, gas and water. https://www.gov.uk/tax-relief-for-employees/working-at-home Technology and Training Almost all contractors will rely on some form of technology, whether it is advanced pieces of software, expensive equipment or a trusty smartphone. https://www.gov.uk/tax-relief-for-employees/buying-other-equipment If this technology is required for work purposes, then a contractor can claim back these costs. For smartphones and tablets, expenses can be claimed if the contract is taken out in the name of the company, which again illustrates the value of registering as a limited company – the same thing goes for telephone lines and broadband. Furthermore, contractors who have bought a new computer, laptop or have invested in software that they need for their job, can also claim on this expense. But it’s not just the tools that contractors rely on that can be claimed as expenses, it’s the skills too. Training courses that advance them in their profession are a deductible expense. Marketing, Insurance and Healthcare Technology, travel and training might be some of the more common expenses claimed for, but the reality is that there’s a wide range of expenses that can be claimed for. Marketing is one such example; a contractor can claim on the money they spend to market or advertise themselves. Another example is insurance, with contractors able to count specific business-related insurance policies amongst their expenses. Healthcare is also on this list – eye tests are tax deductible for workers who stare at a computer screen for long periods, for example. Knowledge is power, or so the saying goes. In this case, knowledge is money, because if contractors do not familiarise themselves with the full list of things they can claim as expenses, the chances are they are missing out on major savings. For more guidance, please speak to you accountant.
