Mastering Business Finances
How to Manage Expenses Effectively in Your Limited Company
There are a lot of financial benefits that come with contracting through a limited company, especially when it comes to tax deductible expenses for a limited company and working from home allowances for a limited company. But, managing these expenses isn't always as simple and straightforward as people expect it to be. To make sure that you're getting the most out of your contracting, you need to manage expenses in a way that maximises your take-home pay, whilst also ensuring that you're compliant with HMRC regulations.
At Go Limited, we know the ins and outs of managing your expenses effectively when you're contracting through a limited company, and we're here to help you handle expenses, allowance deductions and your finances.
What Are Limited Company Expenses?
You'll struggle to find a business that doesn't have expenses; even businesses with very small overheads, small teams and minimal materials have expenses of some sort. Expenses are the costs that you incur when you run your limited company, such as energy bills, raw materials, and rent for your business premises. When an expense is tax deductible, it reduces your business' taxable profit, lowering the amount of corporation tax that you need to pay. For example, equipment that's necessary for work is a tax deductible expense, as are the costs you incur for business purposes and business rent. However, not all expenses are tax deductible and understanding the difference between allowable and non-allowable expenses is key to proper financial management.
Common Allowable Expenses for a Limited Company
When you're managing the expenses for a limited company, you need to know which are allowable as being tax deductible. Some of the most common tax deductible expenses for a limited company include:
Office Costs
|the cost of running your office or workplace, including rent, utilities and maintenance for your office space.
Working from Home Allowance
You might be able to claim the working from home allowance as a limited company, which is when a portion of your home expenses are tax deductible.
Equipment
Laptops, phones and software that are essential for business as allowable expenses for a limited company.
Professional Fees
Accountancy services, memberships and certifications relevant to your industry can be limited company tax deductions.
Travel
If they're related to business trips, mileage and public transport are allowance expenses for a limited company.
Insurance
A lot of businesses require professional indemnity and public liability insurance, which are tax deductible expenses for a limited company.
Staff Costs
Costs related to staffing, such as salaries, pensions and training are tax deductible, increasing your limited company take-home pay.
This is by no means an exhaustive list of allowable expenses for a limited company, and there are other costs that you can claim as being tax deductible.
Non-Deductible Limited Company Expenses
Of course, maximising your limited company take-home pay is not a 'free for all' and you can't simply claim all of your limited company expenses as tax deductible. There are some expenses that aren't tax deductible, such as:
Personal Expenses
You can't claim expenses that were made for you personally, such as travel that's not related to the business or equipment that's not going to be used for work.
Entertainment
Tax deductible limited company expenses don't extend as far as entertaining for non-business purposes, such as dining out or weekends away.
Penalties
You can't claim any fines or penalties as tax deductible expenses, even if they're related to the business.
Clothing
Unless you need protected or branded workwear, clothing is not a tax deductible expense.
To make sure that you're managing your business finances well, you need to know which expenses are not tax deductible. You also need to avoid being tempted to claim costs as being related to your business when they're not, as there's always a chance that you'll be found out.
Successfully Managing Expenses for Your Limited Company
If you're contracting through a limited company, you need to be able to efficiently manage your expenses. This involves accurate tracking, documentation and categorising everything you spend.
Keep Detailed Records
It's important to keep detailed records of all of your expenses, as you'll need to 'prove' them if you're asked to. This includes all receipts, invoices and proof of purchases, which can be used to show these expenses in the event that HMRC requests evidence during an audit.
Use Accounting Software
If you want to maximise your limited company take-home pay, it's often a good idea to use accounting software. There are lots of different accounting software for you to choose from and though they are different, they do provide a similar service. These digital tools make it easier to track expenses, automate reports and stay compliant with tax regulations.
Separate Personal and Business Finances
One of the first things a limited company accountant will tell you is to keep your personal and business finances separate. Instead of having everything going into your personal account and trying to stay on top of it all, open a dedicated business bank account to avoid confusion between personal and company expenses. This makes it a lot easier to see which expenses are related to your business, and which are not.
Claim the Right Allowances
Knowing the various working from home allowances for a limited company is key, as is familiarising yourself with any other applicable deductions. Missing out on these allowances could mean paying more tax than is necessary, reducing your limited company take-home pay by more than you need to.
Claim Travel Expenses Accurately
If you travel for work, make sure that you claim your travel expenses accurately. This means logging business mileage precisely, making sure that every mile you drive for business purposes is tracked. Use apps or tools to calculate mileage claims and do so at HMRC-approved rates. Separate personal trips from business travel to stay compliant, and to make sure no business related travel expenses are missed.
Plan Ahead for Big Purchases
If you're considering expensive equipment, time your purchases strategically within your financial year to optimise tax deductions. This is something that a limited company accountant can help you with.
Educate Yourself on HMRC Guidelines
There are a lot of HMRC guidelines related to expenses, so make sure that you know the ins and outs of all of them. Keep up-to-date with allowable expenses by visiting HMRC's website or consulting with a limited company accountant. Rules can change and staying informed is important. You want to claim for everything you can, without breaking any rules.
Claim the Working From Home Allowance
If you work from home, you can claim the working from home allowance for contractors. This involves calculating a proportion of your home expenses - such as energy bills, internet and rent - and including them as business expenses. Claiming the working from home allowance for limited companies ensures that the portion of your home expenses that benefit your business are categorised as business expenses.
How Accountancy Services Can Help Contractors with Limited Company Expenses
There's a lot that goes into managing your expenses as a limited company, which is why a lot of contractors choose to hire a limited company accountant. By partnering with a limited company accountant, you benefit by being able to effectively optimise your expenses and take-home pay, which you might not be able to do as effectively without their expert knowledge.
Maximise Tax Deductions
To maximise your limited company take-home pay, you need to maximise your tax deductions. A limited company accountant understands the full range of tax deductible expenses for limited companies, and ensures that you claim all allowable deductions.
Accurate Financial Management
With accountancy services for a limited company on your side, it's a lot easier to keep on top of your financial management. A limited company accountant can track your finances, maintain compliance and prepare for audits or tax filings, ensuring that everything is in order.
Bespoke Professional Advice
If you're contracting through a limited company, a specialist accountant can provide personalised strategies for expense management. It's not easy to keep on top of your tax deductible expenses, especially as you're sure to have a lot of other things to do to keep your business running day-to-day, but a limited company accountant can help with advice that's tailored to you.
Stress-Free Compliance
There's no denying that managing your finances as a contractor can be difficult, but accountancy services for a limited company helps to alleviate some of that stress. Expert accounts ensure that your records align with HMRC regulations, saving you from penalties and fines.
FAQ
Why is expense management important for my limited company?
Effective expense management helps maintain cash flow, ensures profitability, and keeps your company financially healthy. Properly tracking expenses also simplifies tax filings and ensures compliance with HMRC regulations.
What expenses can my limited company claim?
Your company can claim business-related expenses such as office rent, equipment, travel costs, professional fees, training, insurance, and employee salaries. Personal expenses should not be claimed, as they could lead to tax penalties.
How should I track my business expenses?
Use accounting software like QuickBooks, Xero, or FreeAgent to log expenses efficiently. Keeping digital copies of receipts and using a dedicated business bank account also makes tracking easier.
Can I claim home office expenses?
Yes, if you work from home, you can claim a portion of household costs like electricity, heating, and broadband. HMRC provides a simplified flat-rate calculation, or you can claim actual costs based on business use.
How do I differentiate between allowable and non-allowable expenses?
Allowable expenses are those incurred 'wholly and exclusively' for business purposes, such as work-related travel, advertising, and office supplies. Non-allowable expenses include personal costs, entertainment (except for employees), and non-business fines.
What is the best way to manage company expenses efficiently?
- Keep accurate records of all transactions.
- Use accounting software for automation.
- Open a separate business bank account.
- Regularly review and categorise expenses.
- Consult an accountant to ensure compliance.
Can I reimburse myself for business expenses?
Yes, if you pay for business expenses personally, your company can reimburse you, provided you keep receipts and maintain proper records.
What happens if I claim non-business expenses?
Claiming non-business expenses could lead to penalties from HMRC, tax investigations, and additional tax liabilities. Always ensure expenses are legitimate and well-documented.
How does VAT affect expense management?
If your company is VAT-registered, you can reclaim VAT on allowable business expenses. Keep VAT receipts and ensure accurate reporting in VAT returns.
Should I hire an accountant for expense management?
While it's possible to manage expenses yourself, an accountant can help ensure accuracy, tax efficiency, and compliance with regulations, saving you time and money in the long run.
How often should I review my business expenses?
Regular reviews, such as monthly or quarterly, help identify unnecessary costs, optimise spending, and improve financial stability. Yearly audits are also advisable.
Where can I find more information on expense management for limited companies?
Check HMRC's official website for tax guidelines, consult an accountant, or use financial resources like business finance blogs and government support services
At Go Limited, we know that managing your business' finances can be confusing, especially if you're relatively new to contracting or if you're recently set up a limited company. But, with the right knowledge and guidance, you'll be able to navigate your expenses and maximise what you can claim as tax deductible, without running the risk of claiming for anything you're not allowed to.
