Managing your finances as a contractor can feel like deciphering hieroglyphics with a flashlight. But logging your expenses correctly keeps you on the good side of HMRC and ensures you’re not leaving money on the table. Let’s break it down into the good, the bad, and the downright hilarious rules for claiming expenses.
Expenses You Can Claim
- Travel Costs 🚗🚉
Whether you’re racking up mileage or tapping your travel card, journeys to and from your client site are claimable. Bonus points if you can navigate the London Tube without looking like a lost tourist. - Daily Subsistence 🍽️
Got a client site that’s more than five miles from your home? HMRC says you’re entitled to claim for meals. So, yes, that coffee and sandwich combo? It’s on the house… sort of. - Overnight Accommodation 🏨
If your client site is far enough away to make commuting impractical, claim your hotel or B&B costs. HMRC won’t fund a five-star stay in the Maldives, but a Travelodge is fair game. - Professional Indemnity Insurance 🛡️
Mistakes happen. Professional indemnity insurance is your safety net and an expense you can claim—just in case that typo turns into a £10,000 problem. - Protective Clothing 👷
If your job involves hazardous work, you can claim the cost of safety gear. Sadly, suits and ties don’t count as protective clothing, no matter how dangerous that morning meeting feels. - Professional Subscriptions 📚
Memberships to professional bodies and subscriptions to industry journals are claimable. Staying informed isn’t just smart—it’s tax-efficient. - Miscellaneous
Other expenses might be claimable too. Chat with your tax adviser to explore all the options. They’re basically your financial GPS.
Expenses You Cannot Claim
- Travel Beyond the Two-Year Rule ⏳
If you’ve worked at a site for 40% or more of your time over two years, the travel expense claims stop. Sorry, but HMRC has its limits. - Imaginary Expenses 🪄
Some companies promise you can claim for expenses you didn’t incur. Spoiler alert: you can’t. Always double-check the dispensation rules—no receipts, no claim. - Entertaining 🍾
Planning a lavish dinner with your client? Great for relationships, bad for taxes. Entertainment expenses are a no-go for deductions. - Personal Expenses 💅
If the expense benefits you personally (hello, spa day), it’s not claimable. Nice try, though.
The Two-Year Rule: Explained
The two-year rule can sneak up on you like Monday morning emails. Once you sign a contract that extends your time at a client site past two years, your travel claims are immediately disqualified. So, if you’re eight months into a gig and agree to stay another 18 months, the claims stop the day you sign. Plan accordingly, or consider moving your client site to the Bahamas. (Just kidding—HMRC won’t fall for that.)
Expenses Within IR35
Yes, you can claim expenses under IR35. Here’s how:
- 5% Allowance
HMRC gives you an automatic 5% of your contract value for deductible expenses. Consider it the “We get it, taxes are hard” allowance. - Specific Deductible Expenses
If you were directly employed, what could you deduct? Travel, training, and even computer costs may be on the table.
In Summary
Logging your expenses properly is like building a savings account for tax season—meticulous, rewarding, and oddly satisfying. With a bit of organisation and advice from your tax adviser, you can maximise your deductions and minimise headaches. Remember: HMRC has seen every trick in the book, so stick to the rules, but don’t be afraid to claim what’s rightfully yours.
Tax rules don’t have to be dull, and neither does saving money!
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