Claim Expenses as a Contractor
As a temporary contractor, you will incur various expenses in connection with your work. Understanding what claims are allowable is critical to a freelance contractor, both to maximize the benefit and to avoid non-compliance liability. Remember that all expense claims should be documented with proper receipts. Not having accurate records can be a serious problem if you are audited, and the fines can double the cost of the unpaid tax liability, not to mention the possibility of a prison sentence for a tax evasion conviction.
Claimable expenses aren’t difficult to understand, but the rules about what is claimable can be complex. Firstly, it’s important to know whether your contract falls under IR35. If it does, your gross salary must be calculated according to IR35 regulations. Allowable expenses incurred as a direct cost of doing business would include travel, with allowable mileage based on the type of vehicle, meals (under certain specific circumstances), lodging, tools, clothing or other items directly related to the contracted work, professional associations, like memberships and dues, and insurance cover.
Outside the IR35, your gross salary might be allowed as a business expense at a higher rate, as well as your spouse’s salary, which would need to be actually paid, in line with the job, and recorded. Incidental expenses might include travel expenses, mileage (if you own your vehicle), food and hotel or room rental, telephone calls, and periodicals relating to your business. Keeping a company bank account allows you to claim interest charges and other expenses. Pension costs may be allowable, if the pension scheme is allowable by HMRC. Professional insurance, computer costs and other administrative costs may also be allowable.
With so many complex regulations, it can be difficult for an individual or small business to accurately calculate tax liability and maximize the benefits of claiming expenses while avoiding accusations of non-compliance. Payroll and tax liability can take on a nightmarishly difficult aspect that makes running a small business very difficult indeed. A PAYE payment solution can take the difficulty out of payroll and tax liability, lightening the load on the small business owner considerably. By outsourcing payroll administration, the freelance contractor can increase profit and streamline the operation, making life much simpler and the business much more efficient. Employees receive regular, accurate pay packets while the business owner sleeps well at night with an extra layer of protection against running foul of the Inland Revenue.
Instead of guessing one’s way through the maze of complex tax liability regulations, the intelligent business owner knows when to outsource the accountancy aspect of the business. Using an umbrella company to handle payroll operations just makes good sense. The freelance contractor retains the freedom and flexibility of negotiating with clients, while shedding themselves of the burden of keeping up with rapidly changing, complex and confusing tax liability regulations. A PAYE payment solution ensures that employees receive regular checks, and handles record keeping, double-checks expense claims and produces proper tax forms for employees, making it easier for the freelance contractor to focus on the real job at hand: fulfilling their duties to their clients.