‘Don’t worry, I’ll chuck it on expenses!’
How many times have you heard that phrase uttered at the latest breakfast catch-up/working lunch/evening ‘meeting’ in the boozer?
Well, while it might sound like a good idea to make the most of your expenses, there are actually quite strict rules about what you can and can’t claim as reasonable expenses against your business costs.
So, pull up a chair and prepare yourself for the lowdown on limited company expenses…
The bad news about limited company expenses
Is your agency set up as a limited company? Then we may have a small piece of bad news for those of you with a more ‘creative’ approach to expenses claims (brace yourself, we don’t want there to be tears).
You can only put expenses through your business if they are wholly (and we do mean WHOLLY) relating to the business and business-related activities and haven’t been classed as disallowable by HMRC.
*deep breath*
Still with us? Well, that’s the bad news out of the way. So what’s the good news?
And the good news (hurray!)
Well, the list of expenses that you CAN offset against your corporation tax bill is pretty huge. So there are definitely plenty of normal running expenses that you can claim against.
Some are more obvious than others but HMRC does have a habit of changing its mind on things every now and again – so it’s best to keep in the loop about what you can and can’t claim.
You can read the full A to Z list of allowable expenses on the HMRC website (although we think you’re unlikely to be claiming expenses for free miners’ coal …random!)
Your everyday expenses
From the long list supplied by HMRC, there are some common tax-deductible expenses that are likely to crop up on a fairly regular basis for your agency. These are the general day-to-day running costs of the agency.
This could include:
- Business travel and accommodation
- Mobile telephone and calls
- Computer software
- Postage and stationery
- Accountancy fees (ours are VERY reasonable, of course…)
- Use of your home as an office
Expenses like these are normally paid through your business bank account. But they are sometimes paid personally by directors too.
If expenses are paid personally by you, or your directors, you’ll get reimbursed for the full amount out of the company coffers – as long as there’s proof that it’s a genuine business expense, of course. And the good news there is that you can offset these expenses against your corporation tax bill (although some expenses can fall into one of those infamous HMRC ‘grey areas’ we mentioned before).
Is it business, or pleasure?
One of these grey areas is the duality of purpose rule (I know, it sounds more like something from a philosophy essay than a tax rule, but bear with us). Let’s take a Gallic-themed example…
If you had a business meeting in Paris and it was ENTIRELY business related then you’d be able to claim this as a travel expense. But if, in a burst of continental joie de vivre, you decided to book an extra day to see the Eiffel Tower and hang around looking existential in Montmartre, the entire trip would be classed as disallowable for tax purposes because of the personal element.
‘Sacré bleu!’, I hear you cry. Seems a smidgeon unfair, but them’s the rules.
What about business mileage? If you’re driving a private vehicle for business, that’s an allowable expense, based on the business miles you travel. That’s a tasty 45p per mile for the first 10,000 miles and then 25p per mile for anything greater (not too sure who’s driving more than 10,000 miles on business, but it sure beats the 500 miles The Proclaimers would walk).
You can make similar claims for business travel by motorbike or cycle (although both modes of transport will play havoc with your artfully coiffured hairdo or expensive Italian suit).
Travelling to work (*honk honk*)
One big thing to note: you CAN’T claim mileage to and from your permanent place of work. This can get a bit confusing for subcontractors who could spend several months working at the same address without it actually being their permanent place of work.
The ’24-month rule’ says that, as a contractor, you can claim travel and subsistence expenses for travelling to work, but only if the contract isn’t longer than 24 months. So, if you’re starting a contracted job it’s pretty important to know the length of the contract before you start. If it’s under 24 months, it’s paid expenses and the life of Riley for you; anything over 24 months and you’re back on the Tesco Economy Baked Beans for the duration of the job.
Don’t let your expenses become expensive
So, as you can see, as with most things tax-related, making the most of your agency expenses is all about knowing the rules – and playing by those rules. Know what you CAN’T claim, know what you CAN claim and make damn sure you write it off against your tax bill for the year.
If you’d like to have a chat about your agency expenses (or want to invite us on a holiday to Paris, all expenses paid), just drop us a line for a chinwag.
We also have this super handy guide that you can cut out & keep.
Please note that the content of this blog does not constitute advice. The tax legislation is regularly subject to change so please do not rely on the information given.
