Limited Company expenses
As a limited company contractor, you will be able to claim expenses for any costs that you incur as a result of the running of your company. Many of these costs can be deducted against your company’s Corporation Tax bill, as long as they are allowable expenses.
Important company expense rules
The golden rule for expense claims is that you can only reclaim expenses that have incurred “wholly and exclusively” for the running of your business. Expenses that have a dual purpose, i.e. things that can be used both for your business and in a personal capacity, cannot be reclaimed.
Receipts and expense-related paperwork must be kept in a safe place as proof of your expenditure. This is particularly important should HMRC decide to challenge any claims or require any information from you. HMRC can investigate claims that go back as far as seven years.
Expenses may be paid directly via your company’s bank account or out of your personal bank account. If you choose the latter, you can reclaim the cost from your company and reimburse yourself.
Most expenses can be used to lower the company Corporation Tax liability, although there are some noteworthy exceptions, such as business entertainment.
Typical limited company expenses
There are various types of limited company expenses for which you can claim.
These can include some of the following:
It may be possible to claim expenses incurred in the time before your company was established. These can include legal advice, business insurance policies, travel costs, phone bills and domain names/hosting.
The criteria for these types of expenses are:
The expenses must have been incurred “wholly and exclusively for the purpose of the trade”
If an existing business pays for the set-up costs related to the new company, the new company cannot claim these expenses
Training costs are not claimable if incurred prior to trade starting by the new company
Tax advice and strategies
There are many different options for structuring your pay to maximise tax efficiency. The right strategy depends on your personal circumstances, such as your age, past employment status and rate of pay as well as your other earnings and future plans. We don't take a “one size fits all” approach to your tax and financial planning; our contractor tax advice usually starts with an assessment of your personal circumstances.
We specialise in non-domiciled and non-resident tax considerations. Our consultants are also well-versed on all the latest changes in legislation. They have thorough knowledge of the markets for UK tax residents and individuals domiciled in the UK.
We can help you if you are a current UK resident with any of the below international interests
- You're planning to move abroad and working in the UK is a short-term situation only You're planning to move abroad and working in the UK is a short-term situation only
- You have overseas property
- Apply for your company’s PAYE scheme
- You want to explore your tax status options
Tax on company benefits
Any expenses paid for by your company from which you benefit personally will trigger a “benefit in kind”, which is taxable to you personally. This may be subject to National Insurance charges and income tax. Types of expenses that may trigger a “benefit in kind” can include things such as a gym membership or a company car.
Expense claims can be a complicated area of taxation. Contact your accountant to ensure you are claiming legitimate expenses and avoid the headache of unintentionally falling foul of the rules.
If you are the shareholder of a limited company, you can pay yourself a portion of the company's after-tax profits in the form of dividends. Limited company dividends are taxable (after some tax-free allowances), but at lower tax rates when compared to salary income, within both the basic and higher rate tax bands.
Because of the tax-free allowance on dividends, they are one of the best ways of withdrawing funds from the company. However, depending on your circumstances and future plans, you may be able to retain funds in your company for withdrawal at a later (and more tax-efficient) date. Your best bet is to discuss the options with your personal accountant or one of our financial advisors.
Salaries paid to the director and any other employees are also claimable expenses for your limited company. However, PAYE and NI are usually payable on any salaries. There are various rates and thresholds for PAYE and NI.
Ask your personal accountant to:
- Advise you on what levels of your salary will be tax-efficient
- Advise you on which PAYE and NI will be payable
- Apply for your company’s PAYE scheme
- Let you know when and how to pay PAYE and NI
We offer specialist, personalised, end-to-end accounting and tax advice