What expenses can I claim?
Freelancer Expenses Guide
- Hotels + Bed & Breakfasts
- Personal Incidental Expenses
- Renting Accommodation
- Staying with Friends or Colleagues
- Bicycle expenses
- Broadband Internet
- Childcare vouchers
- Director’s Salary
- Entertainment Expenses
- Eye Tests
- Home-working Expenses
- Separate business premises within the grounds of the house
- Magazine and Book Expenses
- Mileage Expenses
- Mobile phone expenses
- Subsistence Expenses
- Travel Expenses
- Other Items
Limited Company Directors, Contractors and freelancers can claim accommodation expenses when working on a contract site, attending interviews or going to meetings. Any expenses must be “wholly and necessarily” required and any “personal use” will be disallowed.
Hotels and Bed & Breakfasts
Limited Company Directors, Contractors and freelancers may have to stay away from their normal place of abode when working on a contract site, attending an interview or meeting in order to gain work for their company or while undertaking business related training. The costs involved can be classed as a business expense. The VAT can also be reclaimed.
Personal Incidental Expenses
A director/employee can also claim £5 a night for Personal Incidental Expenses in the UK and £10 when staying outside the UK. This is designed to cover the costs of laundry, newspapers, phone calls home from public phones and so on.
If renting accommodation is a reasonable and cost effective alternative to staying in a Hotel or B&B, then these costs can classed as a business expense. Freelancers and contractors can also claim the associated costs of the utilities at the rented accommodation and Personal Incidental Expenses. The contract for the rental of the property should be in the name of the employer or the Limited Company.
Staying with Friends or Colleagues
The rules for this are no different to the renting accommodation rules as detailed above. The Limited Company should have a contract with the supplier, whether that be a friend/relative or colleague.
Limited Company Directors, Freelancers and contractors who wish to travel the healthier way to work can claim bicycle expenses. The ‘Cycle to Work Scheme’ was introduced as part of the sustainable carbon reduction policy. This makes it cheaper for freelancers and contractors to go green! The bicycle must remain the property of the company and it must be used more than 50% of the time for travel to work. Contractors and freelancers can simply purchase a bicycle plus necessary equipment in the company name and loan it to themselves. The company will benefit from reclaiming the VAT and capital allowances. The director’s salary may remain at a tax efficient level. Where a worker uses their own bicycle for business travel a mileage allowance of 20p can be claimed.
Limited Company Directors, Contractors and freelancers can claim expenses on their Broadband Internet. In order for expenses to fall within the “wholly and necessarily” rules the internet contract must be addressed and invoiced to the company. If the Internet is in a personal name, only the business usage may be apportioned as an expense.
Limited Company Directors, Contractors and freelancers can claim childcare vouchers through a Limited Company under the Government childcare voucher scheme. Through the Childcare Voucher Scheme employees are able to receive up to £55 per week (£243 per month) in childcare vouchers. These are exempt from tax and National Insurance Contributions, and are available to each parent and legal guardian. The scheme can be accessed:
- By registering through HMRC
- By using a scheme provider who will carry out registration and administration on your behalf
Conditions of the Childcare Voucher Scheme:
- The child must live with the employee. The scheme is available to each parent or legal guardian.
- The scheme must be offered to all employees, and all must be able to claim expenses.
- Vouchers cover children up to the age of 15 and can only be used to pay registered and approved child carer’s e.g. registered childminders, nurseries, after school clubs, holiday clubs etc. Childcare vouchers cover children up to the 1st September after their 15th birthday or if the child is disabled up to the 1st September after their 16th birthday.
- If a relative is the child carer then they need to registered and also care for other children who are not related
- A Director’s Limited Company may pay the childcare directly and deduct it against profits as an expense. In this case, the childcare contract should be between the Limited Company and the child care provider
Contractors and Freelancers can save tax by choosing the right combination of salary and dividends. A director’s salary is an annual payment made by the company to the Director and is usually paid at monthly intervals. The gross salary and employers NICs are a deductible expense against the profits made by the Limited Company and so reduce the Corporation Tax payable by the company.
Setting the level of salary is dependent on various factors:
- Working Tax Credits
- Job Seekers Allowance and Other State Benefits
- Earnings from a previous job in the same tax year
- State Pension Entitlement
- Personal or Company Pension Contributions
- Personal Tax Allowance
- National Insurance Contributions
For contractors and freelancers entertainment expenses are usually disallowed. However in some circumstances Input VAT may be reclaimed. In order to claim entertainment expenses a distinction must be made between personal and business entertainment. Personal entertainment is not deductible. Business entertainment must not be provided to an employee of the business and must have been free of charge to the recipient.
Expenses that are considered to be business entertainment:
- Provision of food and drink
- Provision of accommodation
- Theatre and concert tickets
- Sporting events and facilities
- Entrance to clubs and nightclubs
- Use of capital assets such as aircrafts and yachts for entertaining
If you are a contractor or freelancer who uses the flat rate scheme you cannot claim Input VAT. However, you may be able to claim subsistence expenses.
Freelancers and contractors can claim expenses on eye tests.
The HMRC states directors can claim employee expenses on:
- Eye tests that are required by health and safety legislation for employees who are required to use a computer screen or other VDU
- Glasses or contact lenses that you’re obliged to provide because an eye test required by health and safety legislation shows them to be necessary for VDU work – as long as the glasses or lenses are only used for VDU work
- Expenses cannot be claimed on glasses or contact lenses that are used for everyday wear.
Contractors and freelancers who work from home are entitled to claim home-working expenses. There are several different options through which contractors and freelancers can reimburse home expenditure:
Limited Company Directors, Contractors and freelancers, who work predominantly at their client’s sites and use their home to manage business, keep accounts and search for work, can claim the sum allowance of £208 (the equivalent of £4 per week).
For contractors and freelancers who have a room set aside in their house where more than accounts and paperwork are managed.
Three factors are taken into account when apportioning this expense:
- Area: what proportion in terms of area of the home is used for business purposes? Work out what percentage of house area is used for business.
- Usage: how much is consumed? This is appropriate where there is a metered or measurable supply such as electricity, gas or water.
- Time: how long is it used for business purposes, compared to any other use?
Director owning a property rents some of the use of the property to the Limited Company
For directors of a Limited Company.
The Director of the company calculates the apportionment of the costs as above and charges rent to the company. The rent is shown as income in a self-assessment Tax Return and claims the apportionment of the costs as deductible against income. In this way a Limited Company gets the same benefits as a sole trader. NB: Although this method is effective if there are substantial running costs it will complicate your tax return and may result in a challenge from HMRC.
Separate business premises within the grounds of the house
For contractors or freelancers who use an outside office.
The office must be used only for business use and not for any residential use. If there is any residential use, apportionment options must be used. A separate building used for business exclusively will be an asset for the business and so tax rules for this type of asset will apply. HMRC will view this office as being separate from the main residence and allow tax deductions. The purchase of the building and installing the building will be a capital asset for the business. Costs can be written off over a number of years. The service costs for getting the building to a useable condition will be allowed as costs against the profits of the Limited Company. For the running costs then only the costs associated with the office can be claimed.
Magazine and Book Expenses
Freelancers and contractors can claim expenses for certain books and publications required for their business. HMRC bases its guidance on books and publications expenses on the principle of whether the expense is “reasonably incurred”. When considering books and publications each expenses item should be considered separately.
Before you claim expenses for books and publications make sure that:
- No-one personally benefits from the item
- That the publication is a necessity for the business and not for self-interest
- Generally, books, newspapers and magazines are zero rated for VAT purposes.
Limited Company Directors, Contractors and Freelancers can save tax by claiming tax-free mileage allowance payments for the costs of their business journeys made in their own vehicle, under the Approved Mileage Allowance Payments Scheme. Travel should be to a temporary workplace. A ‘temporary workplace’ is a workplace attended by an employee for a limited duration of time or for a temporary purpose (for the director of a Limited Company this is somewhere attended for less than 24 months.)
The approved amount for mileage allowance payments = the number of miles of business travel x the rate applicable to the kind of vehicle.
- Car or Van: 45p per mile for first 10,000 miles, 25p per mile after that.
- Motorcycle: all 24p per mile.
- Cycle: all 20p per mile.
Separate calculations are made for each different kind of vehicle. This tax-deductible expense is beneficial for Freelancers and Contractors who have to travel frequently to a temporary workplace.
Mobile phone expenses
Most freelancers and contractors will use a mobile phone for business and personal use. If you are a freelancer or a contractor you will be interested to know that you can claim expenses on your mobile phone.
You can claim a mobile phone expense as a tax-deductible expense for both purchase and running costs if:
- The mobile is owned by the business
- Invoices are made to that business
- The phone is provided for business use and has “reasonable” personal usage.
More information for freelancers and contractors:
- HMRC do not recognise Pay As You Go top up costs as a tax deductible expense for a limited company.
- Since 2009 Blackberrys, personal assistant devices (PDAs) and iPhones are now classified as mobile phones for the purposes of legislation.
- If a mobile phone is only used for business then all of the input VAT is reclaimable. If there is some personal usage then only an apportioned amount of VAT may be reclaimed. However, this does not apply with the Flat Rate VAT scheme, as there is no input VAT.
What is Subsistence?
Subsistence expenses are business travel expenses such as meals. If subsistence expenses are incurred while traveling on allowable business journeys, employers are able to make subsistence payments tax and NIC free. Freelancers should simply reimburse the expenditure they incur, and need to keep receipts/proof expense occurred. Basically you add as business expense and/or claim as Directors expense if you have a Ltd company.
Freelancers and contractors can claim expenses on travel costs. HMRC states that deduction is allowed for the full cost of travel where necessary attendance is required. ‘Necessary attendance’ refers to the journey made to or from a place that has to be attended in order for the performance of duties to be carried out. This does not include ordinary commuting travel (i.e. travel between home and the ordinary workplace) or private travel
Other items you can claim (if 100% wholly and solely for business use) Software, Web-hosting Costs for Website, Professional Indemnity Insurance, Laptop, Computer, stationery, uniform (provided the uniform items they have a Company embroidered logo), Pension and Life Insurance (provided they are set up through the Limited Company)