Valid Expenses Contractors Can Claim
So, what valid expenses can contractors offset against tax?
It is important to realise that the tax allowability or otherwise of any expenses is not affected by your decision to operate through your own limited company or an umbrella company. However, the same tax rules apply to everyone.
The amount of allowable expenses you can claim will, therefore, depend to a large extent on your IR35 status. So, you will be able to claim more expenses if you are working on contracts which are outside the scope of IR35.
Expenses Allowable for non-IR35 Contractors
The expenses allowable for a contract not caught by IR35 would, therefore, be as follows:
- Your gross salary – you should keep this as low as you can. This is in order to maximise dividends payable to yourself as shareholder. Thereby you avoid employees and employers national insurance contributions).
2. Spouses salary – you must actually pay this and do not be unrealistic. it must have regard to the duties performed.
3. Travel expenses.
4. Motor expenses (mileage claims if the car is personally owned).
5. Accommodation and subsistence.
6. Telephone and business calls only.
7. Books, magazines, subscriptions and courses – where related to business and your contract work.
8. Bank charges and interest – on your company bank account.
9. Pension scheme – where your company pays into to a HMRC approved scheme.
10. Business insurances – professional indemnity, business contents and other business related insurances.
11. VAT on expenses if your company is VAT registered.
12. Computer costs.
Of course, these are only valid expenses for contractors who are outside IR35. There would, therefore, be a different, and much smaller, list of expenses they can claim if they are inside IR35.
So, try and stay outside of IR35.