Tax-saving hacks for contractorsNovember 28, 2019
Running your own company as a contractor can be intimidating, but things like tax and knowing what to claim can be downright scary. As a contractor or small business owner, you're obliged to pay the correct amount of tax to HMRC. You know this already, but what you might not know is that there are a handful of really easy ways to win back cash on tax-deductible expenses, such as working from home and splashing out on a Christmas party.
Another common misconception is that you need an accountant to push the submit button for you. False – you can totally do it yourself. As ever though, HMRC's guidance can be murky, and full of nondescript words like ‘reasonable' and 'fair'. The goal of this article is to help you feel 100% confident in making the decision yourself on what you can and can't claim. When you have all the facts, it becomes second nature.
So, with that in mind, read on for our top 10 unknown expenses that can save you money in the long term as a contractor.
If you work from home – even if that constitutes clearing emails for just two days a week, or running the books once the kids have gone to sleep – you can claim a deduction on certain living costs. For example, if you dedicate your study exclusively to business use and choose to spruce it up with a coat of paint, that's deductible as a direct expense. Equally, things like rent, mortgage interest and real estate taxes can be claimed in proportion to the amount of time you spend using that space for business purposes.
How much can you claim?
To go the easy way for contractors, HMRC have a flat rate that can be used which allows you to claim £4 a week on home office use, meaning a total allowance of £208 can be deducted for the year.
For homeowners however, you can claim a higher amount as long as you put together a rental agreement between you and your limited company. You'll also need to make sure the amount charged isn't OTT and that you have a dedicated study for your business.
If your mobile phone contract is in your company’s name (and you're mindful about your personal use), the full cost of that contract is tax-deductible. Similarly, if you have a broadband box at home that you use for work, that's cash back in the bank. If you're old-school and love a landline, you'll need to prove that calls you claim on have been made for business purposes. In this case, it might be better to set up a landline dedicated to the company – just be sure that the bills are addressed to the company rather than you as the business owner.
How much can you claim? If you register mobile phone and broadband contracts in your company's name, you could benefit from a couple of hundred quid's worth of tax savings a year, depending on your rates.
Thankfully as a contractor working on-site, the stress of the Central Line (or whatever might constitute your daily commute) can make its way back to you as a tax deduction. This is because, as a contractor, the business you're working for is technically a client. Careful though – if you're a small business owner traveling to your own office rented by your company every day, that commute unfortunately isn't deductible.
Any trips outside of daily business definitely represents a saving, such as taking a Kapten across London to see a different client or booking flights to a conference in Milan. And when you're in Milan, don't forget to claim back on your hotel, your meals whilst you're there and any fuel, hire or parking charges you might rack up. On top of travel-specific expenses, you can also claim on tips, phone calls or shipping costs you might incur in getting samples or equipment over there. It goes without saying, but keep those receipts safe!
How much can you claim? If you're traveling to your clients office every day, that's on average a deduction of £8 a day (£2,024 per year)! Then, if you're averaging two other offsite client meetings in London per week and one overnight business trip away per year, you could make an extra annual tax deduction in the realm of £800's+.
It might surprise you that as a contractor working from your clients office, you can treat yourself to lunch from your favourite chain and expense it. You just need to make sure you're not having too much of a laugh and keeping it within the limits of company policy (which you lay out when setting up the business).
How much can you claim? An average spend of around £5 per day can be deducted, so with 253 working days in the year that's a total potential for £1,265 in deductions that can be claimed.
Any training courses or materials that help you improve your skills as a contractor are tax-deductible. And with that, of course, comes travel and food expenses you'll need to pay for whilst on a course. Watch out though, HMRC can be a bit sticky with training – they don't like MBAs or courses where the focus is on learning new skills as opposed to building on those that you already have. So for example, if you're starting your own fitness studio, you won't be able to claim on your personal training or yoga instructor's course as you'll be learning it for the first time, but go wild with refresher courses or anything that might update your existing knowledge.
How much can you claim? Training courses can range from anywhere between £50 up to £500, which can be claimed in sweet deductions.
6. Childcare costs
In the UK, there is something called the Tax-Free Childcare Scheme, which is a serious win if you're a contractor with little ones. Provided that you're in work and not on maternity or paternity leave, the government will pay 20p for every 80p you put into childcare, up to a max threshold of £2000's worth of savings, or until your child turns 11. Given that childcare can easily cost £240 per week, this is a no brainer.
How much can you claim? Up to £2,000's worth of savings.
7. Work events, such as Christmas parties
That's right – it pays to get festive and don those dusty reindeer ears. Provided that your per-head spend doesn't exceed £150 (that can be for one event, or spread across a few throughout the year), those expenses can be claimed as a business deduction and are exempt from both tax and National Insurance. So if it's just you working for the company, treat yourself and your partner (as they get £150 allowance as well) to a lavish Christmas dinner (we know a couple spots where £150 will get you prettty far #spoons), and if you have a couple of employees in tow, we've put together a list of ideas for Epic Small-Business Christmas Parties soon.
How much can you claim? £150 deduction per person in attendance (remember you get an extra £150 for a partner if you want to bring them along).
8. Social media advertising
Any kind of marketing that drives business your way is tax-deductible, and that includes paying to promote posts on Instagram and LinkedIn. Getting your name out there is often one of the most challenging elements of contracting, and costs can climb quickly. Luckily, everything from paid search to business cards – and even a new website – contributes to your tax saving. If you're in need of some inspo, sign up for our Complete Guide to Marketing Yourself as a Contractor, dropping soon.
How much can you claim? Will depend on how much attention you pay to promoting yourself, however a main one to keep in mind is the cost of LinkedIn Business Premium for around £45 a month.
9. Health checks and eye tests
Keeping healthy is healthy for your bank balance and tax position, particularly if what you do involves a lot of staring at screens. Eye tests and health checks are tax-deductible, as are the costs of contact lenses or prescription glasses, provided they're used exclusively for screen time. Finally, a reason to invest in two pairs of glasses – one for home 😎and one for work 🤓.
How much can you claim? Average spend on a pair of glasses is around £50 and a private yearly medical check up can be anywhere between £100 to £500 depending on the extent of the MOT. It pays to keep the health in check.
Occupation-specific magazine subscriptions, journals and books can be claimed as a limited company expense. For example, if you’re the a contracting editor of a photography magazine and you have a subscription to a rival title, you should be able to claim the cost of this as a business expense as it’s a way for your business to keep up to speed on industry trends and your competition.
How much can you claim? On average, professional subscriptions to magazines range from £10 to £30, meaning that you can claim up to £360 per year as a deduction.
If you keep these 10 simple things in mind when completing your corporation tax return, you've potentially claimed an extra £10k worth of deductions. However, knowing what to claim is only half the battle – how can you be sure the numbers are correct from start to finish?! That's where Ember comes in: a simple software that tracks, manages and submits the numbers to HMRC. It's the glue that holds it all together, and an accounting and tax platform that finally speaks to you in your language.
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