Expenses Services for Freelance Contractors in Scotland
Q. What expenses can I claim via my limited company?
A. This is a question that is impacted by whether or not your contract falls within or outside the IR35 regulations. If you are affected by IR35, you are provided with a fixed 5% expenses allowance to cover ‘administrative expenses’. On top of this, you can still claim for certain standard ‘Section 198′ expenses which include things like business insurances and pension contributions.
If your contract falls outside IR35, you are allowed to claim any expenses that are “wholly, exclusively and necessarily” incurred in the conduct of your business affairs (but see below for travel, subsistence and accommodation).
Q. Are travel costs claimable?
A. At the moment, yes you can claim travel expenses from your normal place of work (your home?) to your client’s premises. However the client’s premises must be deemed to be a temporary workplace, which means you must stop claiming the cost of going there if the contract exceeds 24 months in duration. However in a statement in June 2015 the government announced a review of the right of contractors to claim travel expenses from April 2016, proposing that the right to do so be removed for contractors who work under their client’s supervision, direction and control. What that means in practice remains to be seen, as does the true meaning of “supervision, direction and control”, and we will follow the development of this over the next few months.
In all cases it is essential to retain tickets / receipts in evidence of your expenditure, or a record of mileage if you are using a private vehicle, and the functions of our mobile app are specially designed to assist with this.
Q. Are entertainment expenses allowable?
A. Unfortunately there is no such thing as a tax-free lunch, and no tax or VAT is reclaimable on entertainment costs.
Q. Do I need receipts for all expenses I wish to claim or are round sum allowances possible?
A. You cannot claim round sum allowances, and you must retain evidence of any expense you wish to claim.
Q. Should I transfer my personal car to the company, and make it a Company Car?
A. In the old days this was a popular way of claiming additional tax relief by putting your car running costs through the company. However the associated benefits-in-kind tax is nowadays generally so punitive that unless your business mileage is significantly more than your personal mileage, it will cost you money to have a company car, and it is generally more tax efficient to claim a mileage allowance for ‘renting’ your private car to the company.
Q. Can I pay a salary to my spouse?
A. Again, this was a popular way of reducing tax in another era, but is much more closely scrutinized these days. We would need to look at each case on its own merits and advise accordingly.