We have tried to provide as many examples as possible to clarify claiming expenses for you. Please ask for more information if required.
IMPORTANT: Update your expenses regularly to keep your No Worries online account up to date.
IMPORTANT: Paying for expenses using a Company credit/charge card.
If you have a company charge/credit card, it is very important you adhere to the following;
- Your company credit/charge card can only be used for business-related expenses. It must not be used to pay for personal items;
- You will need to pay off the full amount owing every month, not only the minimum payment required. Please do not set up an automatic payment for the minimum value. Please contact your bank to ensure your card account is automatically paid off in full every month;
- You will either need to keep your expenses perfectly up to date and/or send us a copy of your commercial card statement every month so that we can correctly reconcile all individual expenses to the monthly lump sum payment;
IMPORTANT: Invoices and receipts
All business expenses/purchases, whether paid for directly out of your business bank account or paid for personally, should have a receipt/invoice, where possible, with your limited company name on it.
In exceptional circumstances where a receipt is not available, a note should be written with date, description, amount, and reason for purchase.
These receipts should be kept for a period of 6 years for tax purposes. You do not need to send them on to No Worries, and should keep them safely.
IMPORTANT: Claiming VAT on expenses
You can usually reclaim the VAT paid on goods and services purchased for use in your business, BUT it is important not to assume the VAT on expenses. Your VAT receipt or invoice needs to show the net and VAT amounts separately. Please ask for additional guidance, if you are standard rate registered and want to claim VAT back on expenses.
1: Travel and Subsistence Expenses
All travel and subsistence expenses for journeys you have to make in carrying out the duties of your employment, or in travelling to a temporary workplace from home, or attending work related training can be claimed as a business expense.
A temporary workplace is one where you undertake work for a limited duration, or for a temporary purpose. If from the outset of your contract you do not expect to be at your clients workplace for more than 24 months, then all travel costs from your home to the temporary workplace can be claimed. Conversely, once you know your contract will run for 24 months or more, no travel expenses can be claimed at all. In addition to this, if you undertake a series for contracts at different temporary workplaces that all involve substantially the same commute, then you should treat these all as the same workplace for the purposes of applying the 24 month rule.
LONDON: Oyster top-up cards should be avoided as it can be difficult to determine whether the Travel is business-related. If you do use an Oyster top-up card, you must only claim the full cost of each top-up if the card is used exclusively for business. If you use your Oyster top-up card for business and personal use, then you must claim only the cost of each business related journey by using the Oyster itemised billing facility. Travel cards are preferred as the Travel Zone and dates are recorded on each Travel card, and you can claim the full cost of the Travel card so long as its primary purpose is business travel.
Public Transport
Tube, rail, or bus travel costs are all claimable as business travel expenses. Be sure to keep all your receipts.
Mileage Allowances
If you use your own vehicle for business travel you can claim a ‘Mileage Allowance’ (as per the table below) for business mileage. You can also claim for parking and congestion charges but you may not claim for parking fines or speeding fines.
The current approved mileage rates are;
NOTE: You need to keep a record of the date of each journey, its purpose, total miles, and mileage allowance claimed.
Subsistence
You can claim for the cost of one meal when you travel to a remote site, or are working away from your normal place of work. You can also claim an additional meal if you have an unusual early start or late end to a day, on occasion – this should be outside of your standing working hours. We suggest you always claim the actual cost of the meal you have incurred, however if you legitimately have an onerous amount of subsistence claims to process, then you can use the HMRC benchmark scale rates to claim an allowance for your meals. There are very specific rules on this, and if you think this may apply to you please contact us.
Staying Away Overnight
When staying away overnight on business, you may spend money on items such as private phone calls, laundry and newspapers. These are not individually claimable expenses, but you are entitled to relief to cover these costs up to the following rates:
- £5 for every night spent away on business in the UK;
- £10 for every night spent away on business outside the UK;
In addition to these costs, you can claim the full cost of accommodation, meals and travel associated with your stay away from home.
2: Entertainment
You may claim from your business the actual cost of entertaining business contacts on a business occasion, where a representative from an outside organisation is present, provided you do not meet the costs of entertaining relatives, partners, or friends. Note that business entertainment is not tax deductible, and will be disregarded when calculating the taxable profit of your company.
Important – If you are having a business or marketing meeting with the purpose of increasing the company’s income, this cost will be tax deductible. You will need to produce minutes of the meeting held, and enter the expense as business meeting/marketing.
3: Annual event/Xmas party
A Xmas party (or any annual event) is tax deductible for the company provided certain criteria are met. Importantly, the total cost of the event must not exceed £150 per head. If more than one event per year is held, the cumulative total per annum (and we suggest using the tax year 01 April to 31 March) cannot exceed £150 per head. If the cost per head exceeds £150 the total amount becomes taxable to you, you cannot split a bill.
Also, the event must be open to all employees, and one partner per employee is permitted. So if you are the only Director of your company, your company Christmas party will have a maximum of two people attending. This isn’t an allowance – you actually have to spend the money, and keep your receipts. Just like any other company expense, your company does actually need the funds to cover the cost of your annual party.
Please clearly distinguish the expense from other meals when loading the claim, and do not load as Entertainment.
4: Trivial Benefit in Kind
Legislation was introduced in Finance Bill 2016 to provide a statutory exemption from tax for qualifying trivial benefits in kind costing £50 or less. There is an annual (5 April to 6 April) cap of £300 for directors and other office holders of close companies and members of their families and households who are also employees of the company.
No cash or cash vouchers are allowed, but gift vouchers e.g. for a shop, are allowed.
Please contact your account manager for further information on conditions of exemption and procedures to follow.
5: Employer Provided Computers & Bicycles
Revenue guidance states that bicycles loaned to employees by their employer are exempt from a benefit in kind charge. For bicycles there is no financial limit but the cycle must be used mainly for home to work travel.
For computers, the primary purpose of providing the computer must be work related. Ensure you issue a company policy/memo stating that any new computer equipment provided to employees is done so primarily for business use. The computer, and associated software and ancillary devices, can be claimed. To help you comply with this, we can supply you with a “Home Working and Private Use Policy” for your company – please just ask for one.
6: Telephones
The provision of a company mobile phone to you is fully tax deductible for the company, and exempt from any personal tax charge for you, so long as that mobile phone is under your company name, and paid for directly from your company bank account.
NOTE: MOBILE PHONE TOP-UP OR PRE-PAY ACCOUNTS ARE NOT ALLOWABLE, A CONTRACT IS REQUIRED.
Internet and telephone connection costs in the employee’s home are generally NOT allowable unless these costs are solely for the purpose of enabling you to carry out the duties of the employment at home, and the private use is not significant compared with work use. Any telephone or Internet bills should be in the name of your company.
7: Home Office Expenses
There are 3 options available to claim home office costs:
Option 1:
The easiest way to claim for home office costs is to use the HMRC working from home rate of £26 per month (or £6 a week). No receipts or records are required to demonstrate the additional costs that result from working from home.
Option 2:
If you need to work from home, and are not happy with the rate you can expense from Option 1, then you can claim a proportion of your working from home costs. These costs include;
Light and heat * Calls made on your home telephone * Insurance, if there is business equipment insured under that policy * Repairs if incurred on business equipment * A proportion (or all) of ISP/broadband costs * A proportion of the cleaning costs of your workspace.
You CANNOT claim;
Mortgage interest or rent * Water rates * Council tax * Expenses that do not have receipts (ie cash wages of a cleaner) * Repairs or re-decoration of home office
Option 3:
If your company is based at home, or you perform a substantial amount of your fee earning duties as a director or as a company employee from your home (ie not company administration but actual fee earning work for your company) you may consider formalising a license agreement with your company in order to allow it to occupy part of your property in return for a rent and service charge. Most commonly, this cost allocation is done by apportioning the costs based on the total number of rooms in your house/flat (excluding kitchen and bathroom).
Note: you will need to be able to show how you calculated the home office claims – ie you will need to keep your bills and a record of how you worked out the expense portion claim.
Example 1
Pete and his girlfriend live in a two bedroom flat. One of the bedrooms is dedicated to Pete’s home office for his company under a non-exclusive license. The proportion of the rent that can be claimed as business-related expenses is 1 (the spare room) divided by 3 (two bedrooms and a lounge – kitchen and bathroom are excluded from the calculation) – which gives 33.3%. This apportionment is also used for gas, electricity, and council tax costs, and Pete estimates he used his broadband 50% of the time for work, so also claims this as a cost.
The following home office costs can be claimed;
Light and heat * Telephone (apportion line rental and calls on non-dedicated phone) * Insurance * Capital allowances on own business equipment * Capital allowances on costs of business shelving erected for the office * ISP costs, apportioned if there is any private use * Cleaning * Rent or Mortgage Interest * Council tax * Water rates * Repairs or re-decoration of home office
If you intend to use this option please get in touch with us. We can help you with a licensing agreement, and will also be able to advise you of the personal tax implications, and what you will need to report on your personal tax return (as you will essentially become a landlord to your company under a licensing agreement).
VERY IMPORTANT: We have more detailed information on Home Office costs – please contact us if you want to discuss this further.
8: Professional Membership Fees
An employee may claim a deduction for annual subscriptions paid to certain approved professional bodies or learned societies, where the body’s activities are relevant to the duties of the employment. A deduction may also be claimed for certain statutory fees paid to such bodies by an employee as a condition of carrying on the employment (for example as a registered veterinary surgeon or a practising solicitor). A list of approved bodies is available on the Internet at: http://www.hmrc.gov.uk/list3/
9: Training
Work related training is allowable unless its purpose is to reward the employee.
Training is defined as any training course or other activity which is designed to impart, instil, improve or reinforce any knowledge, skills, or personal qualities which;
- Are, or are likely to prove, useful to the employee when performing his/her duties, or
- Will qualify or better qualify the employee to undertake the employment, or to participate in charitable or voluntary activities arising through the employment.
There is no geographical limit on where the training can be undertaken, and all associated travel, subsistence, and course costs can be claimed.
Please note, the same rules apply to conferences, which are classified as training.
10: Relocation Costs
Where an employee has to relocate either as a result of starting a new job, due to lack of opportunities in the current location, or due to a transfer within the company then the first £8000 of removal expenses and benefits are exempt.
The exception covers the expenses of the following:
Expenses and benefits which qualify for exemption can be grouped into six categories
- Disposal or intended disposal of old residence
- Acquisition or intended acquisition of new residence
- Transporting belongings
- Traveling and subsistence
- Domestic goods for the new residence
- Bridging loans.
VERY IMPORTANT: We have more detailed information on Relocation costs – please contact us if you want to discuss this further.
11: Clothing
The cost of protective clothing such as overalls, boots, gloves and helmets can be claimed as an expense. The purchase of a uniform required for the performance of your contract that is a recognisable uniform that shows you’ve got a certain sort of job – like a nurse or police uniform, can also be claimed.
The cost of ordinary clothing, even where a particular standard of dress is required by your client, or is accepted as normal for your industry, cannot be claimed. The well known case of Mallalieu v Drummond [1983] 57TC330, concerned the issue of whether a barrister was entitled to a deduction for expenditure on replacement and laundering of professional clothes. This case found its way to the House of Lords, and the barrister lost.
Dry cleaning costs cannot be claimed either.
12: Eye Tests
If you are required to use a computer as part of your everyday duties you can claim the cost of an eye test. If it can be proven that you also will need glasses or contact lenses purely for the work undertaken at the computer then this cost can also be claimed.
13: Beneficial Loans
There is no beneficial loan tax charge provided the loan does not exceed £10,000.The HMRC do not specify a time limit by which the loan must be repaid, however to avoid the company being charged 32.5% of the outstanding amount as at the company yearend (S455 liability) the amount must be repaid within nine months of the company yearend date. If your loan balance exceeds £10,000, you will additionally be required to pay interest at the approved HMRC rate on the entire loan amount – we can help advise you on this.
VERY IMPORTANT: We have more detailed information on loans – please contact us if you want to discuss this further.
14: Childcare
If you are paying for your childcare then you could claim up to £55 per week (or £243 per month) of the costs incurred, provided certain qualifying conditions are met. It is very important that all conditions are met and accurate records are kept. Only the £55 is paid for directly from the company account, any shortfall for the child care needs to be paid from your personal bank account each week and do not log this as an expense for the company. Please contact your account manager for further information on conditions of exemption and procedures to follow.
VERY IMPORTANT: You can only claim childcare vouchers if you were claiming these costs prior to October 2018.
See Tax-free Childcare for the updated offer from the HMRC for childcare costs.
15: Pensions
Paying into your own private pension (called a Stakeholder pension) is a very tax efficient way of extracting funds from your business. You do not get taxed personally on any pension contributions, and they are fully tax deductible for your business.
A private pension fund is carefully protected by law. Just ensure you keep to the rules;
(1) The pensions savings Annual Allowance is £60,000
(2) Any unused Annual Allowance may be carried forward three years
(3) An Annual Allowance tax charge will apply if allowances are exceeded
(4) The lifetime allowance is £1,073,100
Please contact your account manager for further information on conditions of exemption and procedures to follow.
16: Sub-Contractors and employees
If you find that you have more work than you can perform, or you take on additional projects that need assistance with, you are able to pay an individual or firm to perform a specific task as part of an overall project for your company as a sub-contractor, or you may consider employing an additional member of staff.
Provided the work supplied is for the purpose of the continuing business, this is a tax deductible expense.
There are possibly some important implications for your company with regards to VAT and PAYE, and you may be required to submit Employment Intermediary reporting on a quarterly basis.
Please get in touch with your account manager if you need to pay an individual for work carried out so that we can run through your options.
VERY IMPORTANT: We have more detailed information on paying sub-contractors – please contact us if you want to discuss this further.