Expenses Guide – Limited Company

We have detailed some of the expenses more likely to be incurred in running the business by you, the director and any employees. Allowable expenses must genuinely be incurred  “wholly and exclusively” for the purpose of the business. However, there are examples where the non-business purpose element is merely incidental to the business purpose and the expense will still be allowable.

What expenses are allowable against the turnover of your business and what expenses can be reimbursed to you by the Company can be complex and confusing and it is important to ensure that the Company complies with the relevant tax and Social Security legislation. If any expenditure has a “dual purpose” then this expenditure will generally not be claimable. By way of an example, the cost of items of clothing that are not provided under Health & Safety or are not a recognisable uniform with a permanent and visible logo are not allowable.

All expenses must be the actual expenditure incurred and not rounded or estimated sums. Receipts for all expenditure must be retained for a recommended period of six years as HM Revenue & Customs (HMRC) may ask to see these. Please take a few minutes to read through this guide and check that any expenses claimed are allowable.

Bank Charges

Bank charges paid by the Company are allowable.

Car Purchase

You may be considering the purchase of a new car and are wondering whether this should be done privately or through the Company.

In general it is true to say that the most cost effective way is for you to purchase the car is privately. You can then charge the Company the tax free mileage allowance (45p up to 10,000 miles/25p thereafter). However if you wish to purchase the car through the Company you should be aware that as a director and 100% shareholder effectively you are financing the cost of the car yourself. In addition, as a director a car made available to you for private use by your employer will attract a Car Benefit in kind charge. If the Company pays for any private fuel (even for just one mile of private mileage) you will also incur a Car Fuel Benefit in kind charge.

The Car Benefit charge is based on the percentage of the car’s original list price and the carbon dioxide (CO2 emissions) up to a maximum of 37%. The Car Fuel Benefit is calculated on the relevant percentage of CO2 emissions on a flat rate figure, £22,200 (6 April 2016 to 5 April 2017).

If a Car Benefit (and Car Fuel Benefit) charge arises it will be necessary to prepare and submit a form P11D to HM Revenue & Customs by 6 July each year. The Company are required to provide details of the vehicle and calculate the relevant benefit in kind charges. The benefits would then be shown on your Self Assessment Tax Return.

In addition to the tax due on the benefit charge(s) Class 1A National Insurance Contributions (NIC) is due. This liability to NIC arises on the Company (not the director).

Class 1A NIC is currently charged at 13.8%.

As you will appreciate the liabilities to tax and NIC on you the director and company can be significant and you should be sure of the full implications of purchasing a vehicle through your company. Please contact us if you intend to do so.

Child care

Tax-free Childcare was introduced in October 2018 and does not rely on employers offering a child care scheme. This is a Government run scheme available to parents of up to £500 every three months (£2,000 per annum) for each child. If eligible the Government will pay £2 for every £8 paid to childcare provided via online accounts. Childcare vouchers and directly contracted childcare is closed to new applicants; however if you joined prior to 4 October 2018 you might qualify to keep getting vouchers and contracted childcare.

You cannot claim childcare vouchers or directly contracted childcare if you successfully apply for Tax-free Childcare.

See link: https://www.gov.uk/help-with-childcare-costs/childcare-vouchers

For rules relating to existing childcare vouchers schemes, child care costs of (currently) £55 a week (or £243 a month) can be claimed as a fully deductible company expense if qualifying conditions are met.

Qualifying Conditions:

• Your company can only use the childcare vouchers to pay for childcare that has been registered or approved
• The child is:
– a child or stepchild of the employee at whose expense, either in full or in part, the child is maintained; or
– resident with the employee and for whom the employee has parental responsibility;
– qualifies up to 1 September after their 15th birthday (or 1st September after their 16th birthday if they are disabled)
• Your childcare voucher scheme is generally available to all of your employees where the scheme operates.

The £55 a week (or £243 per month) exemption applies to each individual employee, not per household or number of children. If the qualifying childcare support costs exceed £55 a week, the excess will need to be paid for personally.

The current scheme remained open to new entrants until October 2018. Parents already registered by this date can continue using it for as long as their employer offers it.

What counts as registered or approved childcare?

Registered and approved childcare includes:

• Registered child-minders, nurseries and play schemes
• Out-of-hours clubs on school premises run by a school or local authority
• Childcare schemes run by approved providers, for example, an out-of-school hours scheme or a provider approved under a Ministry of Defence accreditation scheme
• Childcare given in the child’s home that has been approved under a Government scheme (except where the care is provided by a relative of the child)
• Accredited childcare for 8s and over by an approved organization.

Please note that the childcare must be ‘qualifying childcare.’ It will not cover the payments made to unregistered child minders/nannies or relatives such as grandparents who look after the children. Neither will this cover payments of school fees.

What records does your limited company need to keep?

You will need to keep records that the qualifying conditions have been met. These records should include:

• Evidence that the scheme is offered to all staff where appropriate
• Details of the child using the childcare, for example their name and date of birth;
• Details of the child carer(s) used including their registration or approval numbers and, if appropriate, when their approval expires; and
• Evidence that your employees participating in childcare voucher schemes are required to inform you of any changes in the registration or approval status or their child carer;

Please contact us for further details on how existing childcare schemes operate and how to claim these expenses.

Car Rental

Reasonable car rental costs are allowable where a hire car is used for business journeys only. Where the hire period is extended the cost of hire for periods when the vehicle is no longer used on business should not be claimed. A comprehensive mileage log should be kept to demonstrate that the vehicle has been used for business journeys only.

Company Credit Cards

Credit cards in the Company’s name can be provided to authorised users for business use only. If  used inadvertently to make a purchase for a personal item reimbursement must be made in full before the settlement date.

Computer Equipment (Hardware and Software)

Computer equipment, includes laptops, desk top computers, scanner machines etc. Such equipment can be provided by the Company for business use only at your home. Any private use should be incidental and “not significant.” If the Company operates the VAT Flat Rate Scheme, VAT can only be reclaimed if total costs in excess of £2000.00.

Whilst the Company can provide computer equipment to a director, and subject to the above conditions no benefit in kind should arise. However, if the director purchases the computer equipment and claims reimbursement for this from the company the reimbursements is not an allowable cost.

Entertaining

  Business Entertaining

Business entertaining does not include entertaining employees of the same organisation, personal friends, or business acquaintances where there is no business obligation to entertain them. Business entertaining costs are not an allowable expense for the Company. Reimbursements of expenses incurred by you in genuine business entertaining of customers/clients can be claimed but any such costs will be disregarded when calculating the Company taxable profits.

Details of the names of attendees, the organisation which they represent, the purpose of the entertainment and the venue at which the entertaining took place should be kept, together with full  supporting receipts.

  Staff Entertaining

Staff entertainment is the provision of entertainment (including hospitality of any kind) for employees where its provision for them is not incidental to its provision for others. Examples include  the cost of meals where only employees are present, hotel accommodation, theatre outings and attending restaurants, hotels, sporting events etc where no customers or business contacts attend.  The provision or reimbursement of  staff entertaining is an allowable expense for the Company but you will have a tax and potentially a NIC liability.

A liability to tax and NIC will not arise on the provision of an annual party, usually at Christmas/summer time. Additional events may also be held. Subject to the total costs not exceeding (currently) £150.00 per head you will not be taxed upon it providing the total cost does not exceed the exemption. If cost is just £1 over then the whole cost will be subject to tax and NIC. The event must be open to all staff, although in reality that will just be you! You may invite a partner, but if partners are invited, all staff must be entitled to invite a partner and partners will count for the £150.00 per head exemption.

From 6 April 2016 “trivial benefits” are exempt from tax and NIC subject to the following conditions being satisfied:

  • the cost of providing the benefit does not exceed [insert short code]
  • the benefit is not cash or a cash voucher
  • no entitlement to the benefit under the employment conditions
  • the benefit is not provided in recognition (or anticipation) of services or duties performed.

For close companies the total amount that can be treated as a trivial benefit is capped at £300 in relation to benefits provided to directors or other office holders of the company, or to a member of their family or household.

.Gym, health club and sports facilities

Gym, health club and sports facilities provided by an employer will not give rise to a benefit in kind charge so long as the following conditions are satisfied:

  • The facilities are provided for use by all employees
  • They are not open to the general public
  • They are used wholly or mainly by employees

If the Company meets the cost of membership to a gym, health/sports club on behalf of you the employee/director and the Company contracts directly with the gym/sports/health club a benefit in kind will arise based on the cost of the membership. It will be necessary to prepare and submit a form P11D to HM Revenue & Customs by 6 July each year. This benefit would then need to be shown on your Self-Assessment Tax Return.

In addition to the tax due on the benefit charge Class 1A National Insurance Contributions (NIC) are due. The liability to NIC arises on the Company (not the director). Class 1A NIC is currently charged at 13.8%.

If you claim reimbursement for your own membership costs (ie you contract directly with the gym/sports/health club) the reimbursement is a taxable expense and must be reimbursed through the payroll with tax and Class 1 NIC deducted.

As you will appreciate the liabilities to tax and NIC on you the director and the Company can be significant and you should be sure of the full implications of sports/health club memberships being paid on your behalf or claimed back from the Company. Please contact us if you are considering this.

Home Telephone

The costs for all business calls made from your own home telephone are allowable. However, no element of the telephone line rental charge is allowable. All claims must be supported by an itemised bill with the relevant numbers highlighted and details of the name of the customer/client and the purpose of the call.

The Company can arrange for a dedicated business line to be installed at your home and so long as this line is used for business purposes only, all costs, including line rental are allowable.

Home expenses/Use of home as office

You may claim for additional costs for working from your home. If a reasonable proportion of the fee earning work is done from home a proportion of certain costs can be claimed, based on the number of rooms (excluding the bathroom(s) and kitchen) and a percentage of the time the room or area is available for business use. This includes additional lighting and heating costs, telephone calls and any dedicated business broadband service. All such claims would need to be supported by receipts.

Unlike for sole traders no proportion of rent, mortgage interest, council tax, water rates etc costs can be claimed by a director.

Alternatively a flat rate, currently £4 per week (£18 for monthly paid) can be claimed. This is a less onerous way to claim relief as you are not required to keep any records. In many cases such amounts may be sufficient to cover additional costs for heating and lighting the work area.

Internet Subscription

The Company can arrange for Internet access to be installed at your home to be used for business purposes only. This is only where broadband has not hitherto been installed. The contract must be between the Company and the service provider and paid from the Company bank account. No liability to tax will arise so long as any private use of the Internet access is “not significant.”

Any amounts reimbursed to you for subscriptions paid by you personally to the service provider are not allowable.

Insurance – Employer’s Liability, Public Liability and Professional Indemnity Insurance

By law all employers must have Employer’s Liability Insurance to cover against claims by employees for injury etc. However if the Company only employs the owner and they own at least 50% of the shares this is not necessary. Public Liability Insurance is to insure against claims from third parties that may sue if they have suffered from the Company’s or their employees  actions. You will note on the IMS website we state this but it is usual for an Agency/client to require cover and provide proof of cover before allowing an individual on site. Professional Indemnity Insurance is to insure against any claims made against the Company, for example, software produced by the Company that does not work.

Legal, Accountancy and Professional Costs

Legal, Accountancy and Professional costs paid by the Company for Company matters are allowable. Any costs relating to personal advice, ie completion of  Self Assessment Tax Return are not allowable and if paid by the Company you will have a tax and NIC liability.

Medical, Dental and Permanent Health Insurance

Your Company can arrange Medical and Dental Insurance cover for you, your family and any employees. The policy should be taken out in the Company’s name. The Company can claim relief in respect of premiums paid each year.

Medical and Dental Insurance cover provided by your Company will give rise to a benefit in kind and will need to be returned on Form P11D each year. The Company will be liable to Class 1A National Insurance Contributions (currently at 13.8%) on the premiums paid. Tax will be due in respect of the benefit through your/the employee’s Self-Assessment Tax Return.

With effect from 6 April 2016 it is possible to include medical benefits in the payroll removing the need to return details on Forms P11D. To do so an employer must register this intention with HMRC by 5 April in the year preceding the year in which benefits are to be included in the payroll.

The Company may also wish to consider Permanent Health Insurance (PHI). PHI will provide cover to protect the business in the event of you and your employees becoming unable to work through illness. The policy should be taken out in the Company’s name. The Company can claim relief in respect of premiums paid each year.

So long as the insurance cover is correctly arranged and available for all employees and directors no benefit in kind should arise for the employees/directors.

Miscellaneous Expenses

Miscellaneous costs paid by the Company that are allowable, including office supplies, postage, stationery and computer consumables  costs, etc.

Mobile Telephone Costs

The costs for all business calls made from your own mobile telephone/Smartphone are allowable. However, no element of the telephone rental charge is allowable. All claims must be supported by an itemised bill with the relevant numbers highlighted and details of the name of the customer/client and the purpose of the call.

The Company can provide a mobile telephone/Smartphone to you. This must be restricted to one per household in order to avoid a benefit in kind. The contract must be between the Company and the service provider and paid from the Company bank account.

Pension Contributions

Contributions to a Company Pension Scheme can be tax and NIC efficient as any contribution to a pension scheme is outside the scope of NIC. We recommend that specific advice should be sought regarding pension contributions.

Premises Costs

If the Company has premises other than your home the costs of running these premises, such as rental, business tax, utility costs etc are allowable.

Professional Subscriptions

Subscriptions paid to professional bodies, or learned societies, for the better performance of your and your staff’s duties of employment are allowable so long as the body/society is recognised and approved by HMRC and included on their published List 3.

Publications, Technical Journals and Magazines

Publications, trade journals and magazines subscribed for by the Company for the director/employee to carry out their duties of employment are allowable. The purchase must be made from the Company’s bank account and any subscription must be in the Company’s name.

Relocation Expenses

Eligible relocation expenses are allowable. A qualifying relocation includes, on commencement of a new employment, where there is a change in the employment duties or a change to where the duties are normally carried out. The expenses must be incurred before the last day of the tax year following that in which the relocation has occurred.

Qualifying expenses include, expenses of acquisition and disposal (legal,estate agent and surveyor fees), expenses of transporting belongings, travel and subsistence, duplicate expenses (new for old items) and bridging loan expenses. A maximum of £8,000.00 of ‘qualifying expenses’ can be paid free of tax and NIC. All expense must be supported by receipts.

Salaries/Staff wages and Employer’s National Insurance Contributions

Salaries paid to you and staff (where you are a fee earner) are allowable. Employer’s National Insurance Contributions paid by the Company are also allowable.

Subsistence

Subsistence expenses, when you and/or staff are required to travel away from your normal place of employment whilst on business are allowable. The general rule is if travel costs (see below) qualify as business travel any associated subsistence costs are also allowable. Meals and refreshments when you/staff are working away from home must be reasonable. The cost of a sandwich etc purchased on the way to a temporary workplace can be claimed but not for food prepared at home.

Accommodation costs when you/staff are required to stay away from home whilst on business are also allowable. Accommodation includes hotel, guest house, Bed & Breakfast or staying with friends and in certain cases furnished accommodation. This includes rented apartments/flats/houses or flat-share where this is a cheaper and  more convenient alternative to hotel accommodation. Where the cost for rented accommodation is claimed we would need to see a copy of the Tenancy Agreement. Costs of accommodation should be appropriate to the business need, reasonable and not excessive. The cost of breakfast and an evening meal is also allowable.

Receipts must be obtained and only actual amounts expended should be reimbursed.

In addition, where you/staff stay away from your normal place of employment and you may incur additional “overnight incidental expenses.” Such expenses will be incurred when staying in a hotel/guesthouse and includes telephone calls home, laundry, newspaper, mini bar etc. Amounts of up to £5.00 per night for stays in the UK and up to £10.00 for each night, any part of which is spent outside the UK, are allowable and can be paid without receipts.

Sundry Expenses

Sundry expenses incurred, such as office supplies, postage, stationery etc are allowable.

Travel Expenses

All travel expenses for business journeys by any mode of travel are allowable. Business journeys are journeys necessarily incurred in the performance of your duties or travelling to the job where the workplace is classed as “temporary”. Travel to and from a temporary workplace is allowable if the period of time to be spent there is expected to be less than a maximum of 24 months and does not actually exceed 24 months. If initially the period of time is expected to be up to 24 months and the contract is extended beyond that period no further travel expenses are allowable as that workplace immediately becomes a permanent workplace .

All claims must be supported by the relevant ticket/receipt.

This does not include journeys that are ordinary commuting or private travel. Expenses incurred in respect of ordinary commuting or private travel is not allowable under normal circumstances. Any non-business travel reimbursed by the Company would have to be paid through the payroll with tax and NIC deducted. Any costs met directly by the Company for non-business travel is a benefit in kind and would have to be returned on form P11D.

Any non-business travel reimbursed by the Company should be paid through the payroll with tax and NIC deducted. Any costs met direct by the Company for non-business travel is a benefit in kind. You will have a tax liability  and the Company would pay Class 1A NIC (currently 13.8%) on the cost.

If your/staff spouse/partner accompanies you/staff to business functions and incurs travel costs these may be allowable but they must have some essential practical purpose. Further advice should be sought in respect of any travel (and subsistence) costs incurred by a spouse/partner.

Where you use your own car, motorcycle or bicycle on business journeys, mileage allowances can be paid in accordance with the rates below. You/staff must ensure that you have adequate insurance cover for business use and that the car is in roadworthy condition.

A comprehensive mileage log should be kept and produced, together with each claim.

The current rates apply:

Motor – 45 pence per mile for the first 10,000 business miles travelled and 25 pence thereafter.

Motorcycle – 24 pence for each business mile travelled.

Bicycle – 20 pence for each business mile travelled.

Passenger allowance – If you/staff carry colleagues in the car on business journeys an additional 5 pence per mile can be claimed.

Expenses for car parking, toll charges and congestion charges incurred whilst on business journeys are allowable. Parking fines or congestion charge penalties or any other traffic violations charges or penalties are not allowable.

How the ’24 month’ and ‘40%’ rules apply to a director’s travel claims

Claiming travel to a ‘’temporary workplace’’ as an ‘’allowable’’ expense is subject to the “24 Month Rule”.

‘’24 Month Rule’’: HMRC specifies that travel to and from an assignment site is an “allowable” expense if the period of time at the site is both  expected to be less than a maximum of 24 months,  including any time spent on-site prior to the current contract and in fact does not exceed 24 months.  If, at any time, the contract is extended or is expected to be extended beyond 24 months, no further travel to and from the site is allowable as the work place would be deemed to be permanent.

One exception to the above principle may arise where you spend 40% or less of your time at a workplace.  If this is the case, all expenses incurred in travelling to and from that site are ‘’allowable’’ regardless of the  24 month rule, provided that the site is a ‘’temporary workplace’’.  The claim may continue indefinitely for as long as circumstances continue to satisfy the 40% rule.

In addition, travel expenses incurred visiting sites which are not your main assignment site will be ‘’allowable’’ provided that you spend less than 40% of his time at that site.

An example:

You have been working at a site for an 18 month period. This was the period of time for which you had expected to work at this site. You finish working at this site for three months but then return to the site for a further six months. You will therefore be working at the contract site for a total of 24 months (18 + 6). In this case, you would be entitled to relief for your travel between your place of business and the site during the first 18 months because you did not expect to be at the contract site for more than 24 months. You would not, however, be entitled to relief for your travel expenses between your place of business and the client’s site for the further six months (because you did not expect to be at the contract site for less than 24 months).

There is no specific guidance in the legislation or case law as to what exactly constitutes a “significant break” to reset the 24 months. If you have no choice but to return to the same site then the facts of each circumstance would need to be considered.

In order for the 24 month clock to reset to zero, your new site must be a “significantly different” to your previous (assignment or employment) site.

There are several factors that must are considered to determine if your site is ‘’substantially different’’ from your previous site.

These include the ‘’route’’, ‘’cost’’ and ‘’time’’ of the journey, as well as the ‘’distance’’ away (must be at least 10 miles apart) from your previous site (irrespective of whether there has been a change in your contract(s), employer(s), Agent(s) or Umbrella provider etc.).

HMRC guidance and further examples can be found by clicking on the following link: http://www.hmrc.gov.uk/manuals/eimanual/EIM32080.htm

In order to make an assessment of whether your travel is an ‘’allowable’’ you should consider the following questions:

  • Do you spend 40% or more of your time at the workplace? (If yes, then you must check whether it is a ‘’temporary workplace’’ in order to be eligible to claim travel expenses)
  • Does your workplace meet the ‘’24 Month Rule’’ requirements in order to qualify for ‘’allowable’’ expenses?
  • Have you worked at the workplace before?
  • Have you considered your previous workplace?

In the case of Umbrella workers, the ability to claim travel expenses is based on them working under a genuine over-arching contract of employment with the intention to work on multiple assignments and therefore workplaces linked together under that one employment contract. If the Umbrella worker does not intend to work on future assignments at different sites under the same employment contract (with the Umbrella provider), then their initial workplace can’t be deemed to be ‘’temporary workplace’’ for travel expense claim purposes.

Travel for Non-domiciled Individuals

You may qualify for certain additional travel expenses under the rules for non domiciled individuals. Whether such travel is allowable is subject to meeting certain conditions. These conditions are quite technical but include the length of time you have spent in the UK and the requirement that you are a non-UK domiciled individual.  If the conditions are satisfied expenses incurred in respect of travel between the UK and your home country are allowable.

This includes subsistence costs whilst undertaking the journey, including hotel accommodation during transit to the said country and return to the UK. There is no limit for the number of journeys that can be claimed for the director/employee between the UK and the home country.

Costs of travel and subsistence for the employee/director’s family are also allowable. Claims for family members are restricted to two journeys each tax year.

More information in this respect can be found on the HMRC website on this link: http://www.hmrc.gov.uk/manuals/eimanual/EIM35030.htm

If after reading this, you believe these conditions apply to your circumstances, then the claim may be permissible.

Training Costs

Work-related training costs paid by the Company are allowable provided that the purpose of the training is to upgrade or enhance current skills. HMRC require ‘work-related training to “impact, instill, improve or reinforce any knowledge, skills or personal qualities which are likely to prove useful when an employee performs their duties of employment, or will better qualify the employee to perform those duties or participate in any charitable or voluntary activities arising through the employment.”

Costs include learning materials, examination and registration fees and associated travel and subsistence costs. Details of the expenditure, together with the time spent in the course of travelling each respective day must be provided.

VDU Eye Tests/Eye Wear

If you/staff are required to use VDU equipment the cost of an eye examination test is allowable. Where the examination shows that you/staff require corrective appliances with specific prescription to use for screen equipment reasonable costs are allowable. Where no corrective appliance is required the cost of the examination only is still allowable.

IMPORTANT

All expenses should be fully supported by original receipts.

To avoid potential problems, where appropriate it is vital that your Company enters into the contract and funds the expense, such as for mobile phone, Internet connection, computer equipment and training costs. The receipt must be in the Company name.