![]() ![]() Personal items and expenses such as dry cleaning and supermarket shopping, must not form part of your expense recording. This type of expense is not deducted from year-end profits, and therefore does not impact on the company's tax bill. The secondcategory is non tax deductible expenses. Tax deductible expenses are taken from company profits, so your tax bill is reduced. These include business-related travel, IT equipment and services like accountancy and web-hosting. The majority of expenses are in the first category - tax deductible expenses. When looking at tax efficiencies and how HMRC views the expense, there are two categories, and they are treated and recorded differently in your year-end accounts and tax returns. It seems simple enough, but what does this really mean for you as a contractor? HMRC are clear in their guidelines a business expense must be necessary, wholly and exclusively incurred as part of the day to day running of your business. With IR35 being such a hot topic at the moment,things such as marketing costs, professional fees and asset accumulation are all strong indicators that you’re operating as a separate entity from your clients, which in turn supports your IR35 status. ![]() Good expense management gives you a clear view of how your business is performing, and ensures that you have an accurate picture of your financial position throughout the year.Ĭlaiming your business expenses not only helps your company’s financial health, it’s also animportant part of showing the independence of your business if you are working outside of IR35. ![]() This makes claiming expenses a hassle and often results in your tax bills coming as a shock. Many contractors fall into the trap of storing up receipts and invoices to deal with later. You’ll come away with a lower tax billand more actual cash in your business (increasing the value of your company and maximising the profits available for investment or drawing dividends). This might seem counterproductive, as claiming expenseswill eat into your company’s profits, however these expenses are deducted pre-tax and VAT, so they’ll improve the financial health of your company. The majority of the expenses you’ll incur will be tax deductible, meaning you can deduct them from your business’s profits. This could be travel expenses, phone and internet bills, and in some cases even a proportion of your utility bills if you work from home. What are business expenses?Ī business expense can be anything that you purchase that is deemed necessary for the everyday running of your business. This guide will arm youwith all the information you need to understand what you can and cannot claim, how expenses will affect your tax bill, as well as detailing the process involved in making a claim, and the importance of keeping relevant records. By understanding HMRC’s rules and following some simple guidelines, you can ensure you’re maximising the tax benefits for your company. Many contractors believe that claiming expenses is complicated and time consuming, but it doesn’t need to be. He and his colleagues are very happy to speak with Listentotaxman visitors to discuss any tax questions they might have – just visit the Intouch Accounting website for contact details. Patrick now writes for on matters relating to contractor and freelancer tax. This Guide was written by Patrick Gribben, contractor and freelancer Tax Expert at Intouch Accounting. ![]()
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