As a contractor, you probably want to make as much money as possible. To get the most money possible you should aim to pay as little Corporation Tax as possible, which means claiming expenses.
Claiming expenses lowers profits, which lowers the amount of Corporation Tax owed – however, you need to know what can actually be claimed as an expense, which this guide aims to help you with.
Keep accurate records
When it comes to filling out your tax return you need to give accurate figures, which means keeping all of your receipts. We recommend that you seek the help of a good accountant to help you with all your accounting needs.
If you don’t keep proper records, HMRC could see it as a sign that you are trying to avoid tax and fine you.
You are allowed to claim expenses for any equipment you buy which is needed for any current job. However, you cannot buy equipment that will be used for any potential future job and then claim it as an expense, since it is not currently relevant to your business.
You can claim expenses for any item of clothing which is required for a job, but which you cannot use for personal use. Hard hats and steel toe-capped boots used for construction work, for example, are an allowable expense.
Any item of clothing which could be worn in your personal time (even if you don’t) is a non-allowable expense. For example, you cannot claim expenses on a jumper with your business’s logo on it – even if you don’t wear it outside of work, the fact that you could is enough to make it a non-allowable expense.
Food and hotels
If you need to travel far enough for work that you need to stay in a hotel, you can claim expenses for the cost of the hotel and the food you eat.
However, if the job lasts longer than a year, you can no longer claim expenses since HMRC assumes that it is your choice not to move closer.
You can claim expenses for any travel from your home or place of work to a client if you need to travel to do a job.
However, if you do not work from home, you cannot claim expenses for travel between your home and office.
You cannot claim for any training which isn’t relevant to your current job, so any training you do to gain new skills to expand your business is a non-allowable expense.
However, any training that you pay for which is required for any current jobs you have, and which adds to existing skills, can be claimed as an expense.
Helping you with the confusion of expenses
As accountants, Pearl knows how confusing claiming expenses can be, so we recommend you hire an accountant to help you with expenses and any other area of accounting.
Get in touch with Pearl for a free initial consultation.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.