Frequently Asked Questions
These are a few of the more common questions we get asked by prospective clients considering using our services…
Q: What expenses can I claim from my company?
A: If you pay for things personally but which relate to your business you can claim the money back for these items. You will need to create an expenses claim and the Company will then reimburse the amount you are claiming. It is important to keep receipts for anything you claim if possible.
What can you claim for? Below is a list detailing the most common claims.
Mileage – If you undertake business mileage then you can claim this back from the company at a rate of 45p per mile up to 10,000 miles and 25p per mile after this. This calculation covers a one year period from 6th April to 5th April the following year. After this point you can start claiming at 45p again using the rules just mentioned.
There is a caveat for contractors to be aware of which is the temporary workplace rules which are too in depth for this article. You can give Andrew or myself (Jon) a call to discuss these more.
Other travel costs – As long as the cost of the travel relates to a business trip whether using plane, train, boat, taxi or hiring a car these can all be claimed.
Use of your home as an office – If you use a room in your house as an office then you can claim a portion of your household bills against the Company’s profits. CKS Accountancy has a form for this which we ask you to complete and then we calculate the amount you can claim.
Mobile phone – The Company can claim mobile phone costs for one phone per employee only. This includes the cost of the phone and the monthly charges.
Training – Any training which you incur a cost for can be claimed as long as it is relavant to your business or is a genuine attempt to expand your professional skills. For example if you are an IT contractor then a cooking course would not be allowable but a Microsoft certified engineer training course would be absolutely fine.
Computer costs – If you buy your own computer/laptop, tablet, printer or scanner and you are using it for business purposes you can claim it as a business expense. Any other costs such as printer ink, software, memory sticks etc can also be claimed.
Professional memberships – If you pay for membership of any business related professional body you are allowed to claim the costs of this back from the company.
Entertaining – You can claim costs of entertaining clients or suppliers in your accounts. However it should be noted that whilst you can claim the expense from the company there is no allowable tax deduction for the company as far as Corporation tax is concerned. You are allowed to claim £75 per employee for staff entertainment which is allowable for corporation tax purposes. This would be for something like a Christmas meal or other staff dinner or event.
There may be other expenses you are entitled to claim and if you are unsure CKS Accountancy will be able to advise you.
Answered by Jon Clarke
Q: How are the HMRC and Companies house involved in contractors?
A: Your company has to have a registered office, which is often our address, rather than your home address. Official documents are sent here.
Every company has to file annual accounts with Companies House. These must be completed within 9 months of the accounting year end of your Company. We will ask for the information to do this within good time of the deadline.
Each Company must also file an Annual Return with Companies House at a cost of £13 on the anniversary of the Company’s incorporation. The return contains details on the directors and shareholders at the point of completion.
HMRC expect you to file Company accounts and a Company tax return with them within 12 months of the end your accounting year. However if there is any tax due they expect the Company to pay this within 9 months of the end of the accounting year.
Every director of the Company will also need to file a personal tax return for the tax year which ends in 5th April every year. We will ask you for any information we need in order to complete this. It needs to be filed by the 31st January after the previous 5th April.
We will file everything with Companies House and HMRC. All we need from you is the correct information so that we can complete everything accurately and on time. We then ask for your approval before filing any document.
Except for the £13 filing cost of the annual return all of this work is included as part of the monthly payments you make to CKS.
Q: What’s involved in setting up a new company?
A: Setting up a new Company
If you are a contractor and just starting out or not sure how best to proceed with your career why not think about setting up a Limited Company.
The benefits of a Limited Company
You have Limited liability – if anything goes wrong with your business you only lose the money you have put in and are protected by law from being pursued for further money by creditors.
A better way to take home your hard earned pay.
We have a lot of experience with freelancers and we know the most tax efficient methods for taking money from a Company rather than working as an individual or under an Umbrella company.
There is significant prestige from having your own Company and potential customers (the Companies you are contracting with) will be more willing to take on a contract with a Company than an individual.
We can set up your Company for you, deal with initial registrations with HMRC and set up your Company’s payroll and VAT if required. Depending on the size and complexity of your new Company we will charge between £100 and £180 plus VAT. This is allowable as an expense of your new Company, so contact us to find out more.
Q: How does VAT affect contractors?
A: If your company sales are more than £85,000 you are required to register for VAT. We will do this as part of the initial set up cost of the company.
There are VAT schemes that can be used by small businesses to minimise the amount paid and CKS will advise on the scheme most appropriate to your company. However since April 2017 HMRc has changed the rules so that many contractors gain very little if any advantage to being involved in these. More often it is better for contractors to use the standard VAT system, although the difference in financial advantage are minimal.
VAT returns must be filed with HMRC every 3 months and we will complete and file these with HMRC using information we will ask you to provide to us.
Your client manager will be happy help you with any questions you have in these areas.
The time and costs related to preparing and filing VAT for your business are included within the monthly payments made to us.
Q: How does PAYE and Payroll affect contractors?
A: Our contractor clients will need to have a salary run for them through PAYE. The reason for this is to give the directors credits towards the 30 years National Insurance contributions needed to get a state pension.
The salary is deliberately set at a low amount so that most people pay no tax or national insurance on the salary.
We will run your payroll on a monthly basis and file monthly returns with HMRC as required by law, contact us to find out more.
Q: What is High Income Child Benefit Charge?
A: On 7th January 2013 the High Income child benefit charge came into force. This will affect anybody who earns over £50,000 per tax year and receives Child Benefits at any level. If both parents earn over £50,000 then the High Income charge must be added onto the self-assessment tax return of the highest earner.
What is the charge?
For every £100 the individual earns over £50,000 there is a charge of 1% – that is £1. This is a sliding scale meaning that if the individual has over £60,000 they must pay back all of their child benefit as a charge on the tax return.
Individual A has an income of £55,000 and his spouse earns less than £50,000. The couple receive child benefit for 2 children of £20.30 + £13.40 per week. This is a total of £1,752 for one whole year.
The percentage of the child benefit which must be repaid is based on the calculation £55,000 – £50,000 =£5,000/£100 = 50%. This means that 50% of £1752 = £876 must be paid back through tax on individual A’s tax return.
Individual B has income of £65,000 and her spouse earns £53,000. Individual B must complete a tax return and enter the High income child benefit charge, rather than her spouse. The couple also have 2 children and receive £1,752 each year.
The percentage of child benefit which must be repaid is 100% because individual B earns over £60,000 meaning an entry of £1,752 additional tax on her tax return.
Ways to avoid the income tax charge:
You can either opt out of receiving child benefit or ensure that you keep your yearly income below £50,000.
If you would like to discuss this topic in more depth or want help planning how to keep your income below £50,000 please get in contact with us.
Q: What is an IR35 contract review?
A: As a freelancer, contractor or engineer working for your own company there is a potential that HM Revenue & Customs will consider you to be under IR35 and therefore be liable for the same tax and national insurance as an employee.
The main factors which determine if you are caught under the IR35 rules are the terms of the contract between your client and your company.
Andrew Clarke is an expert in contract review for IR35 and as director of CKS Accountancy he is able to review your contracts before you sign them, and suggest how they can be amended to reduce the risk of IR35 issues.
A contract review can cost up to £120 plus VAT but is often provided free to new clients. IR35 can cost you thousands in tax if HMRC investigate your affairs and a contract review to identify and minimize the risks is invaluable.
Talk to us about IR35 and how it might affect you by calling or sending us an email.
Q: Can you help with my tax return?
A: We can complete and file your self-assessment tax returns for you. If you are the director of a company then the cost of this will be charged to your company. We will often give some shares to your spouse in order to minimize the income tax you need to pay. Call us to find out more about this and becoming a client.
To complete your personal return we will send you checklist at the end of each tax year to fill in and return to us to ensure that no information is missed from your tax return and that when we come to ask for information to complete your personal tax return we know exactly what to ask for.
Knowing what income you have will also help us to plan for you for the coming year if there are any potential tax efficient savings we can point out to you for the next year.