This is just a general example, however, and doesn’t take into account the complexities of PAYE taxation or dividend payments. Having this amount of your earnings without tax essentially repays you for the money you spent on the expenses in the first place. So, if you earned £5,000 in a month on your contract and spent a total of £1,000 on business expenses, you would pay tax on the £4,000 actual income you earned with £1,000 tax-free. In essence, your expenses are deducted from your income, to find your true income level. However, offsetting expenses against tax is not as simple. If you’re simply claiming back an expense from your client then you will be reimbursed in full for your expense and will incur no tax on the payment. This means that for those caught by IR35, the hassle of administering a limited company for little taxable benefit is too great, with the majority opting to use an umbrella instead. Limited companies working outside IR35 can still benefit from offsetting expenses, while contractors inside IR35 can only claim administration expenses, some work-related subscriptions and their pension contributions. How does IR35 affect expenses?Īn important thing to note is that you can’t offset expenses through either a limited company or an umbrella if you’re working inside IR35 (most public sector workers). If your expenses will be low or can be claimed back from your end clients, then an umbrella company is a good option to choose. If you have a lot of offsettable expenses, it’s worth considering working through your own Limited Company. While you used to be able to do both through an umbrella company, after a series of clamp downs, most contractors are now unable to offset any expenses while working through an umbrella. On the other hand, offsettable expenses can be offset against tax. When considering how to treat your expenses, it’s important to understand the difference between claimable and offsettable business expenses.Ĭlaimable expenses are costs you can get back from the client. While some are more common, like travel costs, others are more specific and can easily be missed. ![]() What expenses can I claim?īy definition, business expenses are costs that you’ve incurred purely for business purposes. Read on as Umbrella Broker explains the ins and outs of contractor expenses. But beware, both options aren’t always possible. Unlike working for an employer, you won’t have someone there to cover the bill for you, so you’ll be faced with two options as to how to treat those expenses moving forward.Īs a contractor you can either offset some of the expenses against your tax bill, or recover the costs from your end client. ![]() When you’re working as a contractor, there are certain expenses you’ll incur, such as travel, equipment or even entertaining clients.
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