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Building 3 Chiswick Park, 566 Chiswick High Road, London, W4 5YA T: 020 3818 9530
Building 3 Chiswick Park,
566 Chiswick High Road,
London, W4 5YA
T: 020 3818 9530
F: 0333 014 2238
M: 078 0669 0596
Expenses Guidelines for IT Contractors
Travel Expenses
The majority of expense claims for travel relate to public transport, this includes trains, buses,
planes and taxis, all of which are allowable for expenses purposes. When travelling via taxi, it’s
important to ensure that their use is reasonable, such as at times or places where other forms of
public transport are not available.
Mileage
When using your personal vehicle for business purposes, the rate you can claim changes
dependant on the type of vehicle you own, and the number of miles already completed in the
current tax year.
To calculate how much Mileage Allowance Relief you can claim, use the below approved mileage
rates:
First 10,000 miles (per tax
year)
Miles over
10,000
Cars
45 pence per mile
25 pence per mile
Motorbike 24 pence per mile
24 pence per mile
Cycle
20 pence per mile
20 pence per mile
These rates are inclusive of VAT, so you should not add on any further charges for VAT, unless you
are invoicing a client for your travel expenses. If you are using the standard VAT scheme, then you
will be able to reclaim the VAT, at a fluctuating rate between 1p and 3.5 p per mile, dependent on
prevailing rates at the time when the VAT is reclaimed.
In order to claim expenses, you must keep records of every journey that you take, plus receipts for
fuel including VAT (if your claim includes VAT). The VAT shown on the receipts must cover what
needs to be reclaimed.
If provided with a company car by your employer, then you will not be able to claim mileage in line
with the rates above, but if your fuel is not covered by your company, then you may be able to
claim a reduced rate (as per the advisory rates set by HMRC). Detailed logs of all relevant journeys
would need to be kept.
Company Cars
If you are unsure whether supplying a company car is a sound financial decision, it is worth
considering the below implications as either an employer or employee:
Implications for employers
You cannot reclaim VAT on the purchase of a new car. When purchasing a second-hand car, VAT is
not normally charged, but if it is then it can be reclaimed.
If you acquire a company car through a lease contract, then the monthly charges may include VAT.
Businesses which are on the Flat Rate VAT Scheme cannot reclaim any of this amount, but those
which are on the standard VAT scheme can claim back 50 per cent of their payments. If there is a

ACCOUNTANTS

50 per cent of their payments. If there is a ACCOUNTANTS OASIS shankar@oasisaccountants.co.uk

OASIS

Shankar Devarashetty FCCA

Oasis Accountants is a limited company registered in England and Wales No.8359050. Registered as auditors in the United Kingdom by the Association of Chartered Certified Accountants. VAT no: 163 3407 26

Car Benefit Percentage 0% 5% 9% 13% 14%
Car Benefit Percentage
0%
5%
9%
13%
14%

maintenance contract for the car, which is itemised separately, then any VAT charged on this may be reclaimed by businesses which are on the standard VAT scheme. The value of the benefit in kind will be the same whether the car is leased or purchased outright, but the way it is treated for the purposes of Corporation Tax will vary, as detailed below. Corporation Tax Relief will be available on cars which are purchased outright, according to their emissions, as follows:

Cars with emissions up to 130g/km 18% per year (reducing balance)

Cars with emissions over 130g/km 8% per year (reducing balance) If the car is leased or hired on a contract then the Corporation Tax relief available will be:

Cars with emissions up to 130g/km 100% of lease cost

Cars with emissions over 130g/km 85% of lease cost The benefit in kind value of a company car will attract Class 1A National Insurance contributions from the employer at a rate of 13.8 per cent.

If the car is sold for a tax loss, then there will be no balancing allowance given, but if the car is sold for a tax profit then a balancing charge will be levied. For this reason, it is usually more tax efficient to lease a car than to buy one, unless emissions are lower than 110g/km.

Implications for employees An employee with a company car will be considered to be in receipt of a benefit in kind, the value of which will be

taxed at their marginal rate, effectively treating the benefit as salary.

The value of the benefit in kind will use up a proportion of their basic tax band, meaning that there will be less availability for drawing tax-free dividends An employee using a company car will not be able to claim the tax free mileage rates of 45 pence per mile or 25 pence per mile. If fuel is not provided, they may be able to reclaim a reduced rate.

How to calculate the benefit in kind

The value of a benefit in kind is calculated using the cost of the car when purchased (including any additional extras), the CO2 emissions and the type of fuel on which it runs. The calculation is as follows:

Take the car’s CO2 emissions and subtract 100 (unless they are below 110g/km)

Divide the remaining figure by 5 and round the resulting figure down to the nearest whole percentage point

Add 15 per cent for petrol or 18 for diesel to find the benefit in kind percentage (up to a maximum of 37 per cent)

Multiply this figure by the list price to provide the benefit in kind value

Low CO2 Emission Cars:

Cars classed as ‘low emission’ for the purposes of the benefit in kind calculations have emissions of 75g/km or lower, if this is the case then the following benefits will apply:

Emissions

0g/km

1 - 50g/km 5175 g/km 76- 94 g/km 95 - 99 g/km

If the car is a diesel, then a 3 per cent premium will be added to the car benefit percentage.

Shankar Devarashetty FCCA

Oasis Accountants is a limited company registered in England and Wales No.8359050. Registered as auditors in the United Kingdom by the Association of Chartered Certified Accountants. VAT no: 163 3407 26

Calculating the Fuel Benefit: Any fuel which is provided for the private use of a

Calculating the Fuel Benefit:

Any fuel which is provided for the private use of a car will be counted as an additional benefit in kind and is calculated using the car benefit percentage, using the formula above, multiplied by the fuel base cost of £22,100 (2015/16).

The taxable benefit applies for any fuel provided for personal use, so unless the employee reimburses the company for the cost of any fuel used for private purposes, although part reimbursement of private fuel does not reduce the fuel benefit value.

Example:

The owner of a company decides to provide himself with a company car, and chooses a petrol car with CO2 emissions of 132g/km at a cost of £22,000 and with fuel provided for private use. The value of his benefit in kind can be calculated as follows:

CO2 emissions of 132 100 = 32

32/5 = 6.4 per cent, which is rounded down to 6 per cent

6 + 15 = a benefit percentage of 21 per cent

List price (including any extras):

21

Fuel base cost:

21

Total benefit in kind: £9,621

per cent of £22,000 gives a car benefit of £4,620

per cent of £22,100 gives a car benefit of £4,641

This benefit would need to be included on the employee’s personal tax return every year and, as such, will be taxed at the marginal rate. As a basic rate taxpayer, he will pay an additional £1,852 in tax every year. If he had dividends that took him up to, or above, the high rate threshold before taking this additional benefit in kind into account, then he will need to pay an extra £2,084 in tax.

HMRC may wish to amend his tax code to allow them to collect the tax that is owed on the benefit in kind through his salary, so for the purposes of this illustration the code would have been changed to I33L.

The business will also need to declare the company car on the employee’s P11d each year and pay employer’s National Insurance Contributions at the rate of 13.8 per cent, totalling £1,278.

For the most part, company cars are not a tax efficient in circumstances where the owner and employee are one and the same, as this means that both the employee’s and employer’s taxes are effectively paid by the same person.

For a company car to be a genuine tax efficiency, then it can be either in a case where the employee is not a shareholder in the company providing the car, or if the car is particularly environmentally friendly. For this reason, it is usually inadvisable for owner managers to have a company car.

Accommodation

If an employee stays away from their home in the course of their duties, then they can claim the costs of accommodation back from their employer, as long as they do have a permanent place of residence.

There is no confirmed limit on the amount which can be claimed for accommodation, but HMRC will expect every claim to be reasonable. This is usually easy to demonstrate, except in cases where the nature of the accommodation means that it could be construed as a reward for the employee as opposed to an expense, which is incurred wholly and exclusively for the purposes of doing business.

Shankar Devarashetty FCCA

Oasis Accountants is a limited company registered in England and Wales No.8359050. Registered as auditors in the United Kingdom by the Association of Chartered Certified Accountants. VAT no: 163 3407 26

The full cost of hotel, guesthouse and bed and breakfast accommodation is allowable for Corporation

The full cost of hotel, guesthouse and bed and breakfast accommodation is allowable for Corporation Tax purposes so long as they are not excessive.

If

employee, then these costs are also allowable, so long as the standard of the furnished flat isn’t of a significantly higher standard than that of the employee’s normal residence. In the case where an employee’s normal residence is of a particularly high standard, an equivalent flat may not be allowable.

A

from the company bank account where possible. The length of the lease should also be taken into

renting a furnished flat is a more cost effective way of providing accommodation for an

short term lease on a rented flat should be taken out in the company name, and paid directly

account when considering the 24 month rule Guidelines, as it may be considered as an indication of how long an employee intends to be based on the same site. There are situations which will not be allowable, these include:

If the employee is accompanied by their family this is considered non-business usage

If the choice of location is not work-related this is considered a non-business reason

If the standard of the location is unreasonably high as detailed above

Subsistence

If

the cost of lunch purchased en route or during your lunch break. These must be additional costs which you would not have spent were you not at the temporary place of work.

you are travelling to a temporary location for work purposes, then you may be able to claim for

Lunch usually takes the form of a pre-packed sandwich (or equivalent), a meal in a café or canteen and can include a non-alcoholic drink. However, you cannot claim the cost of ingredients to make your own ‘packed lunch’, or the costs of a meal purchased the night before the trip to the temporary location.

If

breakfast and an evening meal. These must be reasonably priced and not to a standard which would be beyond what you would normally have. You can claim a ‘flat rate’ subsistence allowance

staying away from home overnight due to work commitments, you can claim the cost of

of £5 for each night, or £10 if you are overseas

For more information about what expenses you can claim as a contractor, please get in touch with Your Dedicated Account Manager who will be happy to answer any of your questions on his direct extension or on 020 3818 9530 or email support@oasisaccountants.co.uk.

Shankar Devarashetty FCCA

Oasis Accountants is a limited company registered in England and Wales No.8359050. Registered as auditors in the United Kingdom by the Association of Chartered Certified Accountants. VAT no: 163 3407 26