There are certain conditions to meet when you claim for Trivial Benefits as business expenses. Please note, there are two good aspects when you claim for these through your company:
you receive the benefit of the allowance on a personal basis; and
your business saves tax on this at the same time.
Trivial benefits are a recent entry into the UK tax system. They were first brought in on 6 April 2016. Indeed, Trivial Benefits cover the scenario where a business makes rewards to its directors and staff. The allowance is tax-free, and I would advise that you claim for this, if you qualify. What’s more, it is also an excellent way to reward directors and employees throughout the year.
Most importantly, this expense is not well known. Lots who can claim overlook to do this. Many contractors, due to a lack of awareness, do not even know that this allowance exists.
HM Revenue & Customs’ (HMRC) guidance
HMRC state that a business can provide trivial benefits to an officer of a `close’ company. An `officer’ means a director or secretary. The term `close’ company means companies that have five or fewer shareholders. In real life, most contractor companies will have nowhere near five shareholders. Therefore, most will qualify for this tax-deductible allowance.
There is some further official guidance from HMRC. This guidance states that if the total provided does not exceed £300 over the tax year, it is tax-deductible. Also, you need to retain invoices or receipts for all Trivial Benefits that you claim during the tax year.
Considerations
Exemption
To be exempt from tax and NI, the Trivial Benefit will need to meet the following four conditions:
The cost of the trivial benefit is no more than £50 in total inclusive of VAT
It is not cash or a cash voucher that you can exchange for cash
The payment is not a reward for any work or performance
The amount is not part of any work type of duty
There is nothing new about an employer that provides its staff with benefits such as a gift at Christmas. Employers sometimes provide a free meal to celebrate a member of the staff’s birthday or another special event. Some employers also provide free tea and coffee for their employees while they are at work.
What to bear in mind
Under the rules, you can afford to spend a bit more on yourself and your staff without having to pay tax on this.
Gift vouchers up to £50 are ok to claim, providing that you cannot exchange the voucher for cash.
Please note, you need to make sure that you do not go over the limit. If you do go over this, even by a small amount, the total cost will be taxable through the employer’s payroll.
It is also crucial to note that trivial benefits are not the same as benefits in kind (BIK). BIK applies when your employer provides you with some form of benefit. The BIK could be a company car, motorbike or van. It could also be medical insurance, dental cover, a director’s loan, or other benefits.
Other thoughts
Please also remember, if you would like to make a payment of a trivial benefit, it is not in place of any work payment.
What’s more, the £300 limit mentioned above applies to an officer of a `close’ company. Where a business provides a benefit to the director’s family member or household, we need to treat this as being provided to the officeholder. This is then part of their annual exemption.
You should adhere to the limits and exemptions. If you do, the employer will receive a Corporation Tax (CT) deduction on the cost of the Trivial Benefits.
How you can claim for these as a UK contractor
If you work as a contractor through your own UK business, this is one allowance that you should claim. You can claim for this each year as long as you follow the above guidelines. Please make sure that it is not cash or a cash voucher (a cash voucher is a voucher that you can exchange for cash).
Also, please make sure that it is not more than £50 each time. The annual allowance is £300 per director. Therefore, you can claim for the £50 up to six times a year, each year. The amount will save CT at 19%. You also receive the benefit of what items that you spend this on. Please also make sure that you obtain the receipts each time that your business pays for a Trivial Benefit.
Final thoughts
Even now, three years on from the intro of this tax-free expense, many are not aware of it. It is not well known, and as a result, many business owners that can claim this do not do so. There is no definitive list that covers what your trivial benefit can cover. Therefore, as long as you bear in mind the exemptions above, it can be for any cost.
Therefore, if you are a contractor who runs your own UK company (with five or fewer shareholders), please think about claiming for this in the future.
When you are creating your own home office, what should you think about?
Today, hundreds of thousands of people work from home in the UK. It comes as no surprise as it can be good to both the employer and the employee due to lower costs for the employer, flexible work at home and in the office, increased work rate, and a better work-life balance. As a result, for those who have their own business, many may wonder what expenses they can claim for as business expenses.
You may have been working at home for several years, or you are just about to start. Therefore, it is key to have the ideal home office to do your work.
For other useful tips, have a read of my article coveringtax tips for contractors for handy tips you should know when you have your own business (this is a member only article and you can read it if yousign up as a member). This includes my latest advice for best tax planning ideas.
What to think about
Initial thoughts
First of all, you should think about having a separate room or an assigned space in your home to act as an office. What’s more, it is key to keep this separate from your home space.
Next, it would be a good idea to try and make sure that your office has a window or is close to one to let in natural daylight. When you stare at a screen all day with no natural light, it is not suitable for your eyes. You should also try and avoid having a window behind you as this can cause screen glare.
A key thing to note is you must make sure you have a good internet connection when you do your work. Should it not be, you could buy a booster or have your router moved closer to your working space.
Finally, it is also key to keep your personal space and office space separate.
What costs can you claim for your home office?
The types of costs you can claim will include any work-related equipment, furniture and furnishings, and electrical work for your home office.
What’s more, in a typical home office, you will be able to claim a desk and office chair. An ergonomic office chair would be worth investing in, especially if you will spend long hours at your desk. Furthermore, you could also claim for a bookcase, a filing cabinet, and other work-related furniture.
Computer equipment in your home office will include a computer or laptop, monitor, keyboard, mouse, printer, scanner. You might also buy an office phone and I explain here what you can claim for phone charges. These are quite cheap to put in place, and it would be a good idea to keep work calls separate to your personal calls.
In contrast, you should not claim for any structural changes to your house to accommodate your office. Doing this could result in Capital Gains Tax implications on you on a personal basis. It will occur if you sell your house at a future date.
Final thoughts
As with all other expenses that you claim through your business, you should make sure that you obtain receipts for any office costs that you claim.
When you have your home office, besides working here, you may also read up on any news from yourprofessional subscriptions from professional bodies.
As a final note, if you are not sure about anything when planning your home office, please consult your contractor accountant.
As a contractor, can you claim for for marketing and advertising as business expenses? When you run your own company, there may come a time when you would like to promote your services. When you do this, it may help you pick up more work, and you could pay for some marketing and advertising costs to help you out here.
It is worth noting, many businesses in all sorts of industries will pay for marketing and advertising costs in one form or another. The common methods that they will use are flyers and adverts in the media. They may also use an online presence on social media, and they may have their own business website.
Recent times
Being a contractor is no different from other businesses in many senses. Many years ago, most would not consider marketing and advertising costs as an actual cost for a contractor. Times have changed though in today’s world, with the presence of the web and now social media.
The internet is also a place where many contractors find their next contract work.
Therefore, to increase your chances of landing your next contract, it may be a wise choice to invest in some advertising costs for your company and personal profile.
The sorts of marketing and advertising costs that you can claim
The sorts of costs that may be well worth paying for will include:
Hire a CV professional to review your CV and help you update it may attract potential hiring managers towards you in the future. This service is quite cheap, and it could be a good investment for your future.
Hire a LinkedIn profile expert to take a look at and `spruce up’ your profile. They can also make sure that the layout is correct, and it shows your experience and achievements. They will also make sure that they show keywords here, which recruiters use when searching LinkedIn for new candidates. This service is also not very expensive, and it could be a good move for the future.
Create and run your website. You could do this in your own home office. Many IT contractors have an idea of where to start here, but if you are not sure about certain aspects, you could use a template like WordPress. WP will help you with the basics. You could hire a web designer for specific elements that you do not understand, such as web templates and a logo, etc. Your website will have annual hosting costs on web servers, and the yearly fee is typically less than £100.
Other costs that you can claim
Other types of marketing and advertising costs that you may incur will include:
The cost of a business computer that you can use for your business activities including the marketing and advertising.
The cost of web domains. If you have this, it will give your business a professional image when it has a domain of its own. Also, you should use this in conjunction with your business website. What’s more, you could also use the domain name for business emails. Domains will need renewing on an annual basis, and this normally costs less than £30.
Other web costs such as Google Adwords, Facebook, and Twitter adverts. Search Engine Optimisation (SEO) for your website. Please note, Google ranks websites on content. What’s more, well-written content is what Google looks out for when ranking sites on the net.
Advertisements in press and media. Such adverts can be both in local and national media. You might also choose to use some of the online business listing sites.
Final thoughts
Marketing and advertising are a genuine business expense. Therefore, you can deduct these against tax if they are solely for your business.
If you are marketing your business through a form of `entertaining’ (meals out etc) you can still treat these as business expenses. However, they are not tax-deductible.
Are you planning on renting a house or flat on contract that is near your worksite? You may need to do this while you are working away on the contract. The question is a common one as the costs can be quite expensive depending on where you are staying. Therefore, let us go back to the question of why I decided to write this article in the first place. Are these costs actual business expenses that are claimable through your UK company? Let us take a look into this and find out.
I have a separate guide that covers relocation costs -this covers where you are actually moving your primary place of residence.
If you are thinking about contracting abroad there are certain things to consider.
Working away
As a UK contractor, you may, at times, need to travel for your contract work. Depending on your work, on some occasions, the journey could be quite a commute. If this is the case, it may prove to be more practical to stay over near your worksite while you are working there. A journey there and back each day may prove to be too much, especially given how busy the motorways can get during the working week. If this is so. you may prefer to stay closer to your worksite until the working week comes to a close.
Therefore, are you able to claim for the cost of renting a house or flat near to your contract site? What’s more, are you also able to claim the utility costs for the house or flat? Also, what about the food costs be these eating out or eating at the property where you are staying.
The goods news here is you can claim these costs as business expenses. In turn, your business will save the Corporation Tax on these. The claims will, however, be dependent on you meeting certain tests.
Depending upon the type of work that you do, you may be able to claim for your business clothing, however there are certain rules on what you can claim.
What to consider
First of all, the rental property that you are staying in must not be for your permanent place of residence. Further to this, you must continue to have your main residence. What’s more, this should not be close to your contract site. If this is the case, you can now claim for a house or flat near to your new worksite.
HM Revenue & Customs (HMRC) could challenge this claim at some point. If they did, you must be able to show that it is more financially beneficial to stay in temporary digs near to your work site.
Comparing the costs
Your company may, at some point, undergo an HMRC inquiry. As part of this, you would need to try and show that these expenses are necessary. You could, therefore, compare the monthly cost of the rent and utility bills against the cost of the mileage to get you to the site. When you claim for business mileage, you will claim for these under HMRC’s approved rates. The available rates are 45 pence for the first 10,000 miles and 25 pence after that. On the other hand, you could compare these against the cost of monthly rail costs to get you to the site. The total cost of the property rental and utility expenses should come to less than the mileage or rail costs. If it does, you would be able to demonstrate that this is more financially beneficial.
It is also important to be able to show that there is no personal benefit derived from renting the property for your contract. Therefore, you would need to demonstrate that you are renting this purely for work reasons. Furthermore, you would not be able to have friends or family staying there. If you did, personal usage/benefit would require reporting on form P11D.
Other considerations
When renting a house or flat, you must get the rental agreement in your company’s name. The same applies to the associated utility costs. Doing this will demonstrate that the cost is one of your company rather than you.
It would also be advisable to ensure that your company pays these bills. Set the rent and utility payments upon your company account as opposed to your account.
If you can demonstrate and do all of the above, these expenses will be claimable as business expenses via your company.
What you can claim
In terms of food, you will be able to claim your meals out while working away as long as these are not `excessive.’ If during your time away, you will usually be eating at your rented property, you could claim for your shopping bills. To do this, you should ensure that you do not include personal items on your shopping visits. You, therefore, need to be careful here; otherwise, you will need to separate personal items when making the claims through your company!
Claiming for temporary accommodation and the associated utility and food costs for work reasons can, therefore, be allowable expenses. There is also a difference between how business meals and meals that are of an entertaining type nature are treated for tax purposes. All of your travelling type costs are subject you not falling foul of the two-year rule.
Many contractors in all sorts of industries will stay away from home overnight for work reasons during the week. Many of those will also prefer to be renting a house or flat on contract. When you compare this to staying in a hotel or B&B guesthouse, the latter can cost more. If you follow the guidelines above, you can claim these costs through your company. In turn, your business will receive tax relief. You should note that the term `receive tax relief’ means your company will save the company tax at 19%. In turn, this also means that your company will pick up this cost. To sum up, this is better than you picking this up personally out of your already taxed personal income.
Company car versus private car. First of all, how do they compare in terms of tax savings and the taxes that are payable? What’s more, when you run a company car through your own business, there are both advantages and disadvantages. As a result of this, the tax savings and costs will depend on the type of vehicle that you are using and your contractor accountant will be able to help you work this out.
I have also written about using a company or private bicycle or motorcycle if you are consider using this method of travel.
Considerations
Please note, the majority of contractors travel to work by car each day. In most cases, these journeys will be when visiting client sites. On the other hand, they could be attending training sessions and conferences.
When you use your car for business reasons, it can be confusing knowing what you can claim for. Therefore, this article aims to make this clearer for you.
An important point to note is, if you are a sole trader, there is no actual concept of a company car. Indeed, this is because you and your business are the same legal entity. In contrast, when you have your own company, both you and your company are two separate legal entities. Therefore, if you want, your company can own a vehicle.
Mileage rates
For sole traders
Please note, sole traders have a choice of two methods. Furthermore, in most cases, both will be available to work out what you can claim for mileage in your private car:
The first option is the `mileage method.’ To explain further, you can use this method on the basis that you have never claimed for capital allowances on your car. This method works by gathering together the total business mileage travelled during the tax year. As a result of doing this, you can then convert it into mileage allowances by claiming at the HM Revenue & Customs’ (HMRC) approved mileage rates. 45 pence per mile is claimable for the first 10,000 miles travelled in the tax year (6 April to 5 April). After this, 25 pence can then be claimed for each mile thereafter; or
The second choice is the `actual cost method.’ This way of working out what you can claim works by you taking the total business mileage and comparing this against the total overall mileage. Once you have done this, you can then calculate a percentage of the total miles that relate to your business journeys. Next, you can then take this percentage and apply it against the total cost of all of your car’s various running costs. As a result, you can then calculate the proportion of your car running costs that are claimable as a business expense.
To sum up, whichever choice you make from the above your claim will reduce your profits. In turn, this will also reduce the amount of tax and NI that you pay on these.
Therefore, if you do use your private vehicle to travel to work in, you can claim for mileage allowances under HMRC’s approved mileage rates. Furthermore, as above, the rates that you can claim are 45 pence for the first 10,000 miles travelled in the tax year. After this, the rate is 25 pence per mile for each mile. What’s more, these rates intend to compensate the employee for the overall car running costs that they incur. This will include fuel, repairs and maintenance, road tax, and insurance. Therefore, if you are running your own company and you are using your private vehicle for business, your company can reimburse your mileage at the above rates, and this will save tax.
As a side note, the only other car-related costs that you can claim for if you are using your private car for business are parking fees and road tolls.
To sum up, the company will save Corporation Tax (CT) at 19% on the mileage and any parking fees and road tolls.
Company car considerations
Company car
You may be considering arranging for your company to provide you with a company car. When you do, the company will save CT on the various car running costs. Although depreciation is claimed for in the accounts, the company will also save CT on the car cost by way of Capital Allowances. These, in turn, are applied in the company’s CT computations.
If the company allows you to use the car for private journeys, there are also Benefits In Kind (BIK) that come along with this. Furthermore, BIK is taxable at the employee’s highest tax rate (20% or 40%) through their tax code that applies to their salary. Also, BIK is taxable on the employer as Class 1A National Insurance (NI) at a rate of 13.8%.
To sum up, the company will save CT on the car running costs and car costs (under Capital Allowances). However, the company and the director will also incur extra tax / NI on the BIK.
A look at hybrid vehicles
First of all, with the rising company car benefits in recent years gone by, it is now no longer beneficial to be running a company car that has a large engine size and high CO2. Because of this, many refer to such vehicles as `gas guzzlers’.
However, in some cases, it can be tax efficient to run a company car that has low CO2 emission. What’s more, it can be even more beneficial if your car is a hybrid or electric type vehicle.
Indeed, any `normal’ vehicle that does not have ultra-low emissions is going to be more expensive to run as a company car than a private vehicle.
On the other hand, the latest electric and hybrid cars which are tax-efficient at present are expensive too.
Therefore, if you are considering purchasing a company car, it is worth running this past your accountant. Most importantly, they will be able to work out if this will or will not be tax efficient for you. Indeed, your accountant can also help you to choose an option that fits your circumstances. As a result, by doing this, you should not end up paying extra taxes.
Today, the rates that company cars are taxed are dependent on the level of CO2 that they emit.
Comparison
2021/22 -Company car benefit percentages
Cars registered pre 06/04/20
Cars registered post 05/04/20
CO2
The percentage of a car’s list price that is taxed
The percentage of a car’s list price that is taxed
0
1
1
1-50
Electric range 130 or more
2
1
70-129
5
4
40-69
8
7
30-39
12
11
Under 30
14
13
51-54
15
14
For every additional 5 CO2
An additional 1
An additional 1
160 and above
37
N/A
170 and above
N/A
37
For diesel cars generally add a 4% supplement (unless the car is registered on or
after 1 September 2017 and meets the Euro 6d emissions standard) but the maximum
is still 37%. For emissions of 75g/km or more if the CO2 figure does not end in a 5 or 0 round down to the nearest 5 or 0.
Car fuel benefit
24,600 x the appropriate percentage
Van benefit
3500
Van fuel benefit
669
Let’s look at an example:
2017 BMW 4 Series 2.0TD M Sport Gran Coupe 5d Auto 1995CC
Company car (£)
Private car (£)
CT savings:
The vehicle running costs:
Fuel for the car
2,400
Repairs of the car
1,000
Insurance costs
500
Road Tax costs
200
Class 1A National Insurance
2,198
The Capital allowances on the vehicle that costs 37,155 x 18%
6,688
Mileage -27,000 miles:
10,000 miles at 45p
4,500
17,000 miles at 25p
4,250
Total costs
12,986
8,750
CT saved at a rate of 19%
2,467
1,663
Company car tax:
2017 BMW 4 Series 2.0TD M Sport Gran Coupe 5d Auto 1995CC. The CO2 emissions are 114 CO2
114 CO2 is equivalent to 26% of the list price of treating the car as a benefit in kind.
List price 37,155 x 27%
10,032
Car fuel 24,600 x 27%
6,642
Total benefits in kind
16,674
Basic rate
Higher rate
taxpayer
taxpayer
The income tax on the contractor at 20%
3,335
The income tax on the contractor at 40%
6,670
The Class 1A National Insurance at 13.8%
2,301
2,301
Total taxes on the company car
5,636
8,971
The overall tax savings for the company/individual:
The Corporation Tax savings
2,467
2,467
The Taxes on benefits in kind
-5,636
-8,971
Therefore, the overall tax savings (costs) for the company/individual are
-3,169
-6,504
Conclusion
To sum up, as you can see, in this example, to run the BMW through your company, it would cost you an overall £3,169 in tax costs per annum if you are a basic rate taxpayer. Furthermore, if you are a higher rate taxpayer, it will cost you £6,504 in tax costs.
In contrast, you will make overall annual tax savings of £1,663 if you keep the car as a private vehicle and are claiming for mileage allowances.
What’s more, the company also reimburses the mileage allowances (£8,750 in this example) to the director. As a result, this reduces the amount of your drawings that are taxable income.
A further option is to hire a company car. Therefore, as with the company owning the vehicle, there will be benefits in kind applied. However, the company can claim the hire costs as an expense (as opposed to claiming for the cost of the car). Also, it can reclaim 50% of the VAT on the hire costs if the business is VAT registered, and it is operating under the standard VAT scheme.
In conclusion, this example shows that you would be considerably worse off by running the BMW through your company due to the high CO2. What’s more, a vehicle with much lower CO2 may prove to be much more worthwhile, and I will cover this in another article.
Final thoughts
Finally, today the majority of contractors run their vehicle as a private car through their company. In contrast, the few that do have company cars tend to have electric or hybrid vehicles or a lower CO2 if they are using a normal car. What’s more, very few, if any, at all run a `gas guzzler’ because the tax repercussions are not worth it with today’s tax system.
Working away from home overnight -what can you claim for as a contractor as a genuine business expense? While you are contracting, you may, from time to time, need to stay away from home overnight. You may also obtain a contract that is too far to travel to and from each day. Therefore, you may decide to stay away from home during the week.
The choice of accommodation
Your choice of accommodation when working away from home overnight can range from a hotel or B&B, or you may even rent a property. Therefore, when staying away from home overnight, what are you able to claim as business expenses?
Why you might stay away overnight for work reasons
Choosing to stay overnight would usually be if your contract site is too far away to travel back home from each day. However, you could also claim for costs staying away overnight if you attended a training course or business related seminar.
What can I claim for?
The good news is you can claim for the costs that get you to and from the contract location. This includes if you are working abroad. These will include mileage, rail fares, flights, and other public transport as well as food costs. There is also a difference between how business meals and meals that are of an entertaining type nature are treated for tax purposes. All of the travelling type costs that you can claim are, subject to not falling foul of the two-year rule.
Depending upon the type of work that you do, you may be able to claim for your business clothing however, there are certain rules on what you can claim.
I also have a separate guide that covers relocation costs -this covers where you are actually moving your primary place of residence.
If you are thinking about contracting abroad there are certain things to consider.
If you stay in a hotel or B&B
If you are staying in a hotel or B&B, you can claim your accommodation costs.
What’s more, you can also claim for your meals –breakfast, dinner, and evening meal while working away.
If you rent a property
If you are renting a property, you can claim for the rent, and you should aim to get the tenancy agreement in your company’s name.
You can also claim for the council tax and utility bills, and you should also try and get these bills in your company’s name too.
You can claim for your meals if you are eating out.
Alternatively, if you are having your meals at your rental accommodation, you can claim for your shopping bills. Please be careful not to include any personal items on your shopping bills. If you do, you will need to split these out.
Obtaining receipts
As part of your accounting records, you should obtain receipts or invoices for accommodation costs. Furthermore, you should also obtain receipts for any other expenses that you claim while you work away.
Personal Incidental Expenses (PIEs)
Whether you are staying in a hotel or B&B or renting somewhere, you can also claim for Personal Incidental Expenses (PIEs). The rates for PIEs are £5 per night in the UK and £10 per night outside the UK.
PIEs are an allowance to cover sundry expenses while away, such as coffees, phone calls home, and laundry.
You do not need to get receipts for expenses that are covered by PIEs.
Final thoughts
In all cases when you claim for business expenses, they should be `reasonable’ and not excessive.
