If you are looking at contracting through a contractor limited company, have a look at the below contractor expenses guide to find out what you can and cannot claim as a contractor
What Expenses can you claim as a contractor?
- Travel to and from home to your client site including mileage and/or public transport.
- Daily subsistence whilst at your client site. HMRC generally require that your client site must be a minimum distance from your home, for example, 5 miles.
- Overnight accommodation, i.e., hotel or B& B where it is necessary for you to stay over. HMRC would expect that you live far enough away from your client site to justify such an expense.
- Professional Indemnity Insurance.
- Protective Clothing.
- Professional Subscriptions.
- Other expenses may be possible and should be discussed with your tax adviser.
What Expenses can you not claim as a contractor?
- Any travel or subsistence claim relating to travel to a client site where you have spent at least 40% of your time within a 2 year period. (Please refer to 2 year rule).
- Any expense that you have not incurred. This may seem obvious but some companies suggest that you can claim expenses under their dispensation without having incurred any cost. Please refer to our Dispensation section for details of how a dispensation should be applied.
- Entertaining which is not tax deductible.
- Expenses which may have a personal element.
The 2 Year Rule
You fall foul of this clause as soon as you sign a contract that would take you over the 2 year period. Therefore if you have worked at a client site for 8 months and then sign a contract for 18 months, then you cannot claim any further expenses from the date that you sign that contract.
More from our Contractor Expenses Guide
Dispensations – What is an Expenses Dispensation?
A dispensation allows an employer to reimburse certain expenses without the need for the employee to submit receipts. It is intended to reduce administration costs for the employer; it is not a license to claim for expenses that have not been incurred. For example, a dispensation might say that an overnight stay can be reimbursed at the rate of £80 without the need for a receipt. Although your overnight stay may have only cost £70, your employer can reimburse you at the rate of £80. What is crucial is that you have incurred the cost of an overnight stay. If you had not, you would not be entitled to claim anything. The rate of £80 is acceptable because it has been set in consultation with HMRC. They will have agreed that the cost is a reasonable average and that some employees will incur more and some less but that overall it will average out over time.
Can I claim expenses if my contract is within IR35?
Yes you can. There are 2 ways of doing this:
- HMRC give you an allowance of 5% of your contract as tax deductible expenses.
- You can claim any other expense that would have been tax deductible if you had been employed directly by your client such as:
- Allowable travel and subsistence.
- Computer costs.
If you are unsure about any of the details laid out in this contractor expenses guide, please discuss this with your tax adviser.