Contracting through your own Limited company is the most tax efficient way of working. Basically you can take home more of your hard earned money, any accountant or tax expert will confirm this.
In principle, your company can deduct from turnover any type of expenses which aren’t specifically disallowed by HMRC, or capital expenditures. Additionally, you can claim expenses that have a both personal and business elements as long as you accurately apportion the expense and only claim for the business use element.
Here are some typical business expenses you can set off against Corporation Tax:
- Executive pension contributions (via an approved scheme)
- Employers’ national insurance contributions (NICs) payable on salaries paid to company employees
- The cost of subsistence while away from your workplace (no claims after 24 months for subsistence the same ‘temporary workplace’)
- Accommodation costs when away from normal place of business (although must not exceed 24 months at a ‘temporary workplace’)
- Travel and parking costs, mileage allowance if using own vehicle of 45p/mile for the first 10,000 miles, and 25p/mile thereafter. 20p/mile rate for bicycles
- Training course fees as long as the skills are relevant to the business
- Stationary, postage, and printing costsBusiness insurance, such a professional indemnity insurance. See our guide to insurances you can claim against your company
- Company formation and ongoing costs (e.g. Annual Return fee), although the company formation fee is a ‘capital cost’, and cannot be set off against Corporation Tax
- Telephone and broadband packages (if the contract is in the company name)
- Mobile and Smartphones (if the contract is in the company name)
- The cost of business calls can be reclaimed on a residential phone bill
- Home office costs (a flat £4/day without receipts is allowed by HMRC, or work out a proportion of the household bills)
- Computer equipment and software
- Costs of advertising and marketing your business
- Business gifts up to £50 per individual are allowable before more complex rules apply
- Incidental overnight expenses of £5/night (£10/night if overseas) can be claimed as a flat rate if you are working away from home
- Authorised bank charges, e.g. standing charges each quarter
- Christmas party exemption for directors and employees of £150 per person per year (you can include your partner or spouse)
- Professional fees, such as accountant or solicitor
- A limited number of professional subscriptions, if allowed by HMRC
- Capital allowances
- Business magazines and books
- An eye test for employees who use computer equipment
- An annual private health check for employees
- Hire purchase agreements (in the company name)
- Company car expenses (benefit in kind charge for private use)
You should always ensure that you keep all of your receipts and invoices in order to prove that any claims you have made have been legitimate. If you are in any doubt over what you can and can’t claim through your limited company, ask your accountant.
How do I set up a company?
Once you’ve made the decision to contract under your own Limited company, the next step is to form your company. The process takes a few minutes to complete our one page form, following which your company will be formed same day if within normal work hours so all you need to think of is a company name.
You will be surprised at just how little extra work there is to get your company up and running. The team here at T2UK will help you understand how much to pay, invoicing cycles, expenses and completion of tax forms to ensure you comply within the HMRC guidelines.
Why not have a no obligation meeting with Alex, Simon or Kieran from Transition to discuss you potential retained earnings through a limited company? Simply click and e-mail email@example.com for an appointment.