In simple terms, expense is the money spent by an organisation for the purpose of business. In accounting, an expense is an outflow of cash or other asset of value incurred during a particular accounting period.

As a limited company contractor, you may incur various business expenses whilst undertaking your contract duties. Claiming all your allowable business expenses could reduce your corporation tax bill. It is therefore worth taking time to understand what you can and cannot be claimed as expense. Please find below a summary format showing how the corporation tax is calculated:

Turnover (Total of all invoices excluding VAT)                             XXX

Less: Tax allowable expenses                                                        (XXX)

Taxable profit                                                                                     XXX

Your company will pay corporation tax on taxable profits at the current rate of corporation tax which is 19%. The above format shows that higher the figure of allowable expenses will result in lower taxable profits and ultimately lower corporation tax payable.

Expenses – General principal

There are some basic principles which you should keep in your mind when claiming any expense as for business purposes.

• You can only claim an expense that have been incurred ‘wholly and exclusively’ for the purposes of your business.
• You must keep original receipts and relevant documents in relation to expenses incurred.
• Most expenses can be offset against the income of the company except few such as client entertainment.

Most commonly incurred contractor company expenses

• Salaries, wages, commission, and benefits
• Pension contributions
• Stationery, business cards, postage, printing, etc.
• Equipment cost
• Bank Charges
• Training courses
• Business insurances
• Magazine subscriptions and periodicals
• Subscriptions to professional organisations
• Accommodation
• Subsistence costs
• Telephone
• Travel expenses
• Use of home as office
• Legal, accounting, and other professional fees
• Medical check-ups and health related expenses
• Advertising and marketing costs
• Costs of an annual company event
• Client entertainment
• Staff entertainment
• Business gifts
• Accommodation

To find out more about allowable business expenses or for any other information, please contact us.