Where possible, it is advisable to cover any company expenditure directly using company funds, such as making a payment directly via the company bank account. This ensures that all company transactions are kept in one place, and can be easily tracked.
If you're paying for business expenses through your personal funds, it helps to establish a process for expense tracking and claiming (just as you would, if you were to make a claim from an employer). It's best to set aside time to manage your expense claims on a regular basis, such as once a month or fortnight. You can keep track of your expenses by using a spreadsheet, or through apps such as Expensify.
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Do I need to retain expense receipts?
You need to keep your receipts for expenses for at least five years after the 31 January submission deadline for the relevant tax year.
It helps to minimise paperwork wherever possible, so we recommend taking a picture of your receipts and storing these images away digitally. You can use cloud storage platforms like Dropbox or an expenses app like Expensify.
Can I expense general travel expenses?
General travel expenses can't be claimed as a deductible business expense. You can only claim for travel-related expenses as long as the trip is made wholly and exclusively for business purposes, and isn't considered 'ordinary commuting'.
Can I expense Software?
You can claim the costs of purchasing computer software that your business uses for less than two years. You can also claim for computer software that you use for more than two years, if your company makes payments regularly to renew the license.
Why are expenses important?
Expenses are important as you can claim them against your revenue, which helps to reduce the amount of tax you need to pay.
Can I expense Optical expenses?
You can claim an eye test as an allowable expense, if it is required for the use of visual display equipment in your work.
In general, you can't claim for glasses or contact lenses unless these items are 'wholly and exclusively used for business purposes', and you're able to prove that you don't use them outside of your working houses. One example would be that you have several pairs of glasses, one of which is used only when you're at work.
Can I expense Utilities?
If you're renting an office, you can claim utilities as a deductible expense.
If you're using your home as an office, you'll need to work out the proportion of your utilities that you can allocate to business use in order to claim these costs as a deductible expense.
What is the 24 month / 2 year rule for expenses?
The 24-month rule, also referred to as the two-year rule, enables contractors to claim travel expenses from their home to a client's office, as long as it is classed as a "temporary workplace".
The following conditions must apply for a work location to be classed as a "temporary workplace"
- The period of engagement is less than 24 months
- The contractor should spend less than 40 percent of their time at the workplace
Essentially, if you work at the client's office for more than 24 months, or spend more than 40 percent of your time at the location, it is considered a permanent workplace-and as such, you won't be able to claim travel or subsistence expenses.
Bear in mind that this is subject to the SDC legislation introduced in April 2016. Further elaboration on SDC can be found in our guide to claiming expenses as an umbrella company contractor.
Can I expense Travel & subsistence?
You can claim travel-related expenses, as long as the travel is wholly and exclusively for business purposes and isn't considered 'ordinary commuting'. HMRC defines a commute as a trip that you make between your home and a permanent workplace.
You can claim for:
- costs associated with running a car or vehicle, such as fuel expenses, parking fees and tolls.
- transport fares for flights, as well as rides taken via train, bus, taxi and ferries
- meals and accommodation for overnight business trips
You can claim "reasonable" food and drink expenses if:
- You're making an occasional business trip outside of your normal pattern of travel
- You're staying overnight, and are also claiming accommodation costs
- Your trade is, by nature itinerant