Following on from an earlier guide to business expenses, it’s worth knowing some more about claiming expenses and the importance of how you record them.
As Contractor Accountants in Manchester, we are often asked about business expenses we are often asked about the use of rented offices, company cars and even if contractors can pay their partner as a business.
What costs cannot be claimed as an expense?
Any costs that are not exclusively for the use of your business cannot be claimed as business expenses. These include such costs as medical expenses, client entertainment, gym membership and childcare.
How do I claim business expenses?
If you are a limited company contractor, then claiming expenses is straight-forward. If you pay for the expense yourself, then you need to complete a bank transfer from your business account to your personal account to cover the cost. If you take the expense straight out of your business bank account, then you need to make a note of it so that you can accurately assess your profit at the end of the financial year.
How should I record my expenses?
We cannot emphasise enough the importance for contractors to keep clear and detailed business records. Whether you pay for an expense yourself or through your company bank account, then you must keep some proof of purchase. HMRC demand that you keep expense receipts and invoices for a minimum of 6 years in case they decide to investigate you. The receipt/invoice should show a detailed breakdown of the purchases and include a separate VAT calculation if included.
How do I make pension contributions?
You can make personal pension contributions or employer contributions through your limited company, and both ways of contributing can be advantageous to you from a tax perspective depending on your circumstances. The team at In Accountancy are not authorised to give you any advice on which pension to invest in, but we can help with informing you of the potential tax relief involved.
Can I pay my partner a salary?
Technically yes, you can pay your partner a salary, but in reality, this can be hard to justify to HMRC. For example, if your partner carries out general administration duties for you then HMRC would expect this to not take more than a couple of hours a month to be paid at an appropriate hourly rate.
Can I rent an office to work in?
If you wish to rent somewhere to work that isn’t part of your home then this can be done, but it is best to ensure that this is essential for the running of your business, that the agreement you sign is in the name of your limited company and that the rent is paid from your business account and not your personal one.
Can I buy a company car?
In general, company cars are not an economical option for owner-managed companies as the same person will end up paying both the employee and the employer taxes! Company cars are only tax efficient if you are an employee of a company that you do not own shares in or if the car is particularly environmentally friendly.
For more information on business expenses and our contractor accountant’s services, please call our experienced team on 0161 456 9666 or email us at enquiries@in-accountancy.co.uk
You may not be aware that for every referral we receive, we donate £50 to Francis House Hospice when we are engaged to provide services. The hospice cares for children and young adults with a short life expectancy. They need over £3.6 million in charitable donations each year to continue to provide their services. All you need to do is pass the contact details of your friend, colleague or family member by ringing 0161 456 9666 or email askus@in-accountancy.co.uk. There is no limit to the number of people you can refer to us. We will donate for each new introduction upon our appointment.
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