Now you’re operating as a limited company you can claim expenses for some of the things you buy. But what exactly can you claim expenses for and why should you go through the palaver of working it all out?
Take home pay – the reason you should claim expenses
This is a hugely simplified example: your contract earns you £5000 a month, you haven’t claimed for expenses and decide to withdraw the £5000 – you will be charged tax on the entire sum. However, if you claim for your £1000 of expenses and still withdraw the £5000 – you’ll only be charged tax on £4000. Essentially expenses aren’t taxed.
Whenever the topic of expenses comes up, IR35 rears it’s ugly head. You simply can’t get around the fact that what you can claim for is different if your contract falls within IR35 or outside of it.
If it falls outside of IR35 you’re in for a much easier ride: you can claim for anything that is ‘wholly and exclusively’ for the purpose of business. In layman’s terms that means that if you buy something that you use to run your business and don’t use it for anything else – you can claim it as an expense.
This might be your bedding for overnight stays in your sleeper cabin. You can claim for other professional services like your accountant or solicitor’s fees. You can even claim for your company set up fees.
If your contract falls inside of IR35 you can only claim for ‘administration costs’ of the contract.
Check out Sidekick’s post on expenses here.
How to claim?
There are a few ways to ‘claim’ your expenses. You can either pay them directly from your business’ bank account or you can pay for them yourself – and the company can reimburse you for these expenses. As always make sure you keep all your receipts.
Don’t forget to check out our most recent post on how DNI cover can save you £000’s.