Claiming freelance expenses

 15 November 2013

When it comes to claiming back your expenses as a freelancer, it can be challenging to figure out what you can and can’t claim. Shannon Norman, of 1st Contact Accounting, shared 10 common claimable expenses.

Freelancers and creative business owners must make sure they claim expenses correctly and legally.
Freelancers and creative business owners must make sure they claim expenses correctly and legally.

What qualifies as an expense?

An expense is anything ordinary and necessary that occurs as a direct result of taking on an assignment.

As long as all expenses are for businesses purposes, you’re able to claim back.

As long as all expenses claimed for are wholly and exclusively for businesses purposes, you’re able to claim back.

In the process of claiming back your expenses, you’ll come across two kinds of expenses: claimable and reimbursable.

Claimable expenses

  • A claimable expense reduces your taxable earnings, which ultimately reduces the amount of PAYE and NI you have to pay when contracting under an umbrella company.
  • If you’re contracting through a limited company instead, claimable expenses reduce your company’s taxable earnings. This will reduce the amount of corporation tax you have to pay.

Reimbursable expenses

This can mean two things, depending on whether you’re contracting through an umbrella company or a limited company.

  • With a limited company, you can claim back for business-related expenses that you’ve had to pay personally.
  • In an umbrella company set-up, you will get reimbursed for certain business-related expenses.

So what are some of the expenses you can claim back?

There are a number of expenses that you’re able to claim back as a contractor. Here are ten examples.

1. Travel expenses

Public transport

  • Tube, train and bus tickets can be claimed as long as they are work-related. This is subject to a rule of a maximum of 2 years per contract.
  • Cabs can only be claimed after 10pm or before 6:30am and can’t be claimed regularly. Once again, this must be only for business purposes.

Cars

  • Cars must be owned by you, and you must keep a log book. Only business miles can be claimed. You’re allowed to claim 45p per mile for the first 10,000 miles and then 25p per mile after that within a tax year (6 April to 5 April the following year).
  • If you’re renting a car, the cost of the car hire and fuel can be claimed.

2. Subsistence expenses

Lunch can be claimed when you’re working through the day, as long as you have been working away from your trading address.

Breakfast and dinner can only be claimed within reason.

Breakfast and dinner can only be claimed within reason. For example, if you start work at 9:30 or 10:00am, it would not be considered reasonable to claim breakfast.

Working until at least around 7pm will be considered reasonable for you to claim dinner as an expense.

3. Business trips

In order to be able to claim back on accommodation costs when on a business trip, you should have had to work, and stay overnight, away from your usual base.

Be aware that this only applies if you had to travel more than two hours to get to your temporary location.

All meals can be claimed on a business trip, very much the same as subsistence claims.

  • Breakfast: to claim for this, you should have had to depart for your business trip reasonably early (before 9:30am). If you’ve stayed overnight, then breakfast the following morning can be claimed.
  • Lunch: as long as you work through the day, you’re able to claim lunch.
  • Dinner: this can be claimed on the nights where you’ve had to stay somewhere overnight.

3. Training expenses

If you want to claim back on training costs, the training must be completely and totally relevant to the performance of your duties stipulated in your current contract.

This can’t include any personal development training.

4. Claiming for rent

Rent can be claimed proportional to the amount of office space used.

If your office space forms 25 per cent of your flat space, you can claim 25 per cent of your rent as an expense.

For instance, you’re renting a two bedroom flat and use one bedroom as office space which forms 25 per cent of the total flat space, you can claim 25 per cent of your rent as an expense.

Also, if the area you’re working from is zoned as a residential property, council tax shouldn’t be claimed.

6. Internet usage

Line rental can’t be claimed unless the contract is in the business name.

However, if it’s used for personal and business use, a reasonable percentage, like 20 per cent, can be claimed.

7. Stationery, postage and equipment

This must be wholly required by your current employment and can’t include any private benefit.

8. Clothing

If you have to purchase protective and specialised clothing and need to wear this in order to do your job, then you can claim the cost of this.

This can include items like:

  • Waterproofs
  • High visibility clothing
  • Overalls
  • Work boots
  • Hard hats.

Costs associated with cleaning and maintaining the items can also be claimed.

9. Telephone lines and mobile phones

The line rental of your telephone can only be claimed if all calls are business-related and the contract is in the company name.

Phone line rental can only be claimed if all calls are business-related.

For mobile phones, only business calls can be claimed.

If a limited company provides you with one mobile phone and the contract is in the limited company’s name, all costs can be claimed.

10. Entertainment

This is allowed, but this expense is not tax-deductible, and is generally not advised as there is no real benefit to it.

  • For example, if you were to take a client out for lunch, or buy a client a bottle of wine as a gift, you would be able to claim this back as an expense. However, as stated above, it would not be tax-deductible.
  • On the other hand, if you were to rent a DVD during a business trip after work, you would not be able to claim this as a business expense.

It’s important to remember that entertainment has to be related to promoting your business and cannot be classified as an advertising cost.

HMRC will also investigate should your entertainment claims become excessive.

1st Contact Accounting are experts at taking care of contractors’ specific accounting needs.