Dear Contractor Doctor,
I’m an IT contractor working through my own contractor limited company for a bank in the City of London. I am currently preparing my 2008-2009 limited company accounts for my accountant. I have calculated that during that time I spent about 90% of my work time onsite for my client, which racked up £3,500 of travel expenses and £2,000 of food expenses.
My accountant is now telling me that only food expenses outside normal pattern should be considered and that I can’t claim for the money I spent in coffee shops paying for lunch, coffee etc.
Can you tell me if I can claim for regular lunch and food expenses?
Contractor Doctor says:
“Yes,” confirms Steve Crouch, managing director and tax specialist at contractor accountants Crunch.co.uk, “if the expenses have been ‘necessarily incurred in the performance of duties’, then you can claim subsistence costs, such as food and beverages, plus travel and accommodation expenses.”
But of course, it’s not quite so simple, as Crouch explains: “You must be working away from your normal place of work at a temporary workplace to be able to claim for the travelling expenses to get to that temporary workplace, as well as for the subsistence and accommodation costs whilst working there.”
Temporary workplaces and the 24-month rule
According to Crouch, HMRC’s definitions of a permanent and temporary place of work are not helpful. “HMRC says that a temporary place of work is a workplace that is not a permanent place of work, and vice versa,” he says. “But for most contractors, their office at home is their permanent place of work and their clients’ offices are their temporary workplaces.”
Crouch warns contractors to be aware of the 24-month expenses rule, which says that after 24 months consecutive work at one location a contractor can no longer call this place a temporary workplace and can no longer claim expenses.
“Plus,” he continues, “if a contractor creates a limited company specifically for the purpose of working on a particular contract at a single location, with no other contracts before or after, they’d be hard pressed to convince HMRC that their expenses claims are legitimate.”
Claiming for food and subsistence ‘outside normal pattern’?
So, back to the contractors question: “Assuming that Larry’s client’s offices are his temporary workplace and he is not caught by the 24-month rule, then he is perfectly entitled to claim for his food and coffee expenses,” continues Crouch, “as long as he has obtained and kept the receipts for everything he has spent.”
As Crouch explains, limited company contractors should always keep receipts for all their contractor expenses, as HMRC don’t like contractors who are working through their own contractor limited company to use HMRC’s scale charges.
He cautions: “Contractors who try to claim without receipts by using the scale rates may find that, on inspection, HMRC will consider their expenses to be an allowance, and thus deemed as pay. Therefore, the ‘expenses’ would attract back payments of PAYE, National Insurance Contributions (NICs) and interest, not to mention penalties.”
Contractors who try claim without receipts and using the scale rates may find that, on inspection, HMRC will consider their expenses to be an allowance, and thus deemed as pay
Steve Crouch Crunch.co.uk
Advice to contractors: be reasonable, don’t be greedy
By putting costs into their business, including expenses such as travel and subsistence, it is possible for limited company contractors to significantly reduce both the amount of corporation tax they pay and the ‘tax-free’ cash that ends up in their pockets.
But Crouch warns against contractors getting greedy: “If you are sensible, stick to the rules, keep all your receipts and file regular expenses claims to your own company, then pay yourself these claims from your business to your personal account, a future HMRC inspection should not be an issue.
“Limited company contractors are in business in their own right and this involves financial risk,” he concludes. “So claiming legitimate expenses is simply a cost to a contractor’s limited company of them doing business with their client.”
Good luck with your contracting!