IT Contractors: become an expenses wizard

IT Contractors: become an expenses wizard

If you are new to contracting, the first year of your contracting life is the hardest. The trickiest task is trying to get to grips with the UK’s complicated tax system.

Now that you are effectively working for yourself, your end goal is to try to maximise your take home pay. Having some knowledge of how the tax system works and tax allowable business expenses could reduce the amount of taxable profit (as the company receives tax relief on these costs). If the company’s profits decrease your tax bill could decrease too.

The vast majority of IT contractors operate via a limited company and outside IR35, so this week’s article looks at what HMRC deems allowable business expenditure.

HMRC’s definition of a business expense is “costs which are wholly and exclusively for your business’. So, if you use it solely for your business, great. It is not so great if you use it in your business and personal life, as you may not be able to claim it as an expense or have to pay tax on the value of such benefits, known as ‘benefits in kind’.

Need it, buy it, claim it

Let us look at what expenses are allowable. This is not an exhaustive list, we strongly recommend speaking to an experienced accountant, such as our ourselves to get the full run down:

  • Business Travel – can claim mileage of 45p per mile for the first 10,000 miles and then 25p per mile, parking and congestion charges
  • Contributions made to a pension scheme
  • Stationary expenses: folders, pens, business cards, postage etc
  • Equipment costs: laptops, desktops, printers, software, office chair and desk, lightbulbs etc
  • Charges related to the company bank account
  • Subscription costs to professional organisations (HMRC have an approved list, so please check to see if the organisation you belong to is on there)
  • Magazine / journal subscription costs (if allowed by HMRC and related to your contract work)
  • Phone, mobile and broadband costs (only if the contract is in the limited company name)
  • Accountancy fees (this is usually a monthly cost and any ad-hoc charges that are related to the company)
  • Data protection registration and renewal
  • Training courses / Seminars that you attend relating to your contract work
  • Advertising costs related to the company ( e.g. advertising in journals, magazines, online adverts etc)
  • Temporary accommodation / rent  – if required to stay away from home. You can also claim for meals.

We recommend that you keep all your expense receipts for 6 years in case HMRC choose to investigate.

It is important to remember the 24-month rule – employees who work at a permanent workplace do not qualify to claim travel expenses. When travel does qualify, then any subsistence and accommodation expenses related to the travel are also available.

And some that you may not know about

It is not widely known (and HMRC do not advertise it either) that the costs for one private medical health check per year and eye test are deemed as allowable business expenses without attracting a ‘benefit in kind’ charge. This is particularly relevant to you as an IT contractor as you probably spend around 10 hours a day looking at a computer or laptop screen. The cost of this is allowable for each employee of the limited company, so your partner might be entitled to it as well.

Home and Away

As an IT contractor, you may typically spend most of your contract on the clients’ site, but you may be able to claim the flat rate £4 per week allowance for running a home office.

Alternatively, if you are not based on the clients site and you work from home, seek advice from an experienced accountant as you may be able to reclaim a fair proportion of your home running costs, but you will need evidence of this.The running costs of your home can include mortgage interest and utility bills.

Top tip 

Don’t get caught in the contractor’s trap of buying a car through the company. Many have done it and have gone on to regret it. You are probably better off claiming mileage for your own car than owning a car via your limited company.

Trying to make your way through the muddy water of expenses can be a scary and difficult task. Luckily for you, we are here to guide you through it. Check out our website to find out what Cogent can offer you. It’s more than you think!

 

Contracting and engineering are a match made in heaven for women

23rd June is an important date for many, it is the date for the EU Referendum, but it also National Women in Engineering Day.

Organised by Womens Engineering Society (WES) to raise the profile of women in engineering and highlight the amazing opportunities that exist for girls and women thinking of carving out a career in engineering.

Brief history of women engineers

Women’s involvement in the engineering industry started to be documented from the 1800’s but their involvement pre-dates this. It wasn’t until 1908 that the first woman was awarded an engineering degree. Alice Perry graduated from Queens College in Galway, Ireland.

Today, women still only make up 9% of the UK engineering workforce. This is the lowest percentage of any European country. The image of engineering is still very much male dominant. WES and other organisations are working hard to change this perception, starting at grassroots level; primary schools.

Skills shortage

The skills shortage in engineering is a huge concern for industry leaders and the UK Government. A shortage of skilled workers has a knock-on effect on the UK economy. A recent report by EngineeringUK showed that the UK needs to be producing an extra 69,000 engineers each year than it already is just to meet current demand. Getting more women into engineering is one of the tactics being drawn up to reduce the skills shortage.

What can engineering offer as a career?

The engineering sector is a growing industry and that means jobs. In times where traditional sectors are shrinking, engineering is on the rise. That is because the term engineering covers such a wide spectrum; Civil Engineering, Mechanical Engineering, Electrical Engineering, Geotechnical Engineering, Computer Engineering. In fact, the site www.typesofengineeringdegrees.org lists over 40 types of engineering roles.

If you think that working in the engineering sector will involve wearing a hard hat and high-vis you are wrong. Lots of engineering roles are office based and various roles exist in support roles as well, such as HR, Accounts, Marketing, Research etc.

Traits that an engineer needs:

  • Good understanding of math’s
  • Good communication skills: listening, verbal and written
  • Problem-solving: digest (complex) information and come up with solutions
  • Display leadership skills: ability to recognise team members individual strengths and assign tasks accordingly
  • Creative thinker: answers to problems can’t always be found in a manual, thinking outside of the box is often needed in engineering

Contract or Perm?

Most engineers choose to work as contractors. Projects evolve over time and require specific skills at specific times, a contract engineer can be brought in at the right time to work on a certain task and when it is completed they move on to another project. How long they work on a project depends on what needs doing, for example, it could be a few weeks or in some instances years.

As contracting offers greater flexibility than permanent employment, you can choose to work on a project then take a break to concentrate on the family before moving onto the next project.

If are worried about being out of work, remember contractors typically earn a third more than their equivalent permanent employees, therefore a period of non-working should be manageable.

Going contract – what is the best option for me?

If you choose to go contract there are different options available to you, these are:

  • Working through an umbrella company
  • Forming your own limited company
  • Be self-employed
  • Become an agency employee

If you are thinking of contracting as a short term option then going down the umbrella company or agency employee route is better. However, if you are serious about contracting and are wanting to do it in the most tax efficient manner then forming your own limited company is the better option.

Our articles ‘Forming a limited company: top tips from company directors‘ and ‘Be a winner in the tax game‘ give further details about forming your own limited company.

Ready for the next step?

If you interested in finding out further information on a career in engineering, take a look at these sites:

Women’s Engineering Society – http://www.wes.org.uk/
WISE Campaign – https://www.wisecampaign.org.uk/
Engineering Council – https://www.engc.org.uk/

If you are a contractor or freelancer and are interested in working with a firm who can handle all your accountancy needs, check out our amazing offer for new clients ‘3 months free‘. 

Freelancers: How well do you know LISA?

No, not the lady from 3 doors down! LISA! The new Lifetime ISA that was announced by George Osborne in March’s Budget.

Billed as a ‘simple alternative savings arrangement’ it offers freelancers a savings arrangement that matches the flexible lifestyle that many enjoy.

The Lifetime ISA will be operative from April 2017 and will be available for people aged 18-40. Any money you put into it before your 50th birthday will receive an added 25% bonus from the Government.

There is no maximum monthly contribution – you can save as little or as much as you choose each month up to £4,000 each year.  Effectively this means for every £4 you save, you will receive £1 from the Government. Looking at it on a larger scale, it means you could receive an additional £1000 for every £4000 you save.

Can I use the money for what I want?

Under the age of 60, no you can’t. The money must be used towards purchasing your first home up to the value of £450,000. The emphasis here is on ‘first home’, if you already own a property you will not be able to use this money towards the purchase of another home.

Over the age of 60, yes you can. After your 60th birthday, you will be able to withdraw all the money tax free. Caution is needed though, if you decide to withdraw the money out of the ISA before your 60th birthday and spend the money on non-property, you will be hit by a 5% charge and must return the Government bonus and any interest or growth on that bonus.

Is it worthwhile putting money into LISA?

As long as you are saving the money into the Lifetime ISA to be used for the purposes set out above, then yes it is worthwhile putting money in to one. If you think you will need to withdraw the money before your 60th birthday for a non-property purchase, then you would be financially better off considering other saving options.

A Lifetime ISA has advantages if you are using it as a ‘pension savings’ pot. Firstly, most pension schemes only allow you to take out 25% tax free, a Lifetime ISA allows you to take out some or all of the money tax free. Secondly, a Lifetime ISA is not restricted by household, so if you are a couple and you both meet the age criteria, you could both save money into your own ISA.

As long as it is used as it is intended to be a Lifetime ISA gives the opportunity to save in a tax smart manner.

What if I am too old for a LISA

If you miss out on being able to invest into a Lifetime ISA, there are options still available to you. If you were thinking of using a Lifetime ISA for buying your first home:

1. You might qualify for a Help to Buy ISA (there is no upper age limit but you only have to November 2019 to open one)

or

2. The new personal savings allowance means most basic rate taxpayers can earn £1000 interest a year tax free.

If you were thinking of using a Lifetime ISA as a pension savings pot, you can take advantage of the increased annual limit (from £15,240 to £20,000) on ISA’s. This increase comes into place from April 2017.

Are you considering switching accountants? If yes, then check out our amazing 3 months free offer for new clients. 

Contractors: Why volunteering is good for your career

Stuck in a role you hate? Want to get out but are scared to make the leap into something else? Volunteering could be the answer.

This month plays host to Volunteer Week, running from 1-12 June it aims to highlight the positive impact that volunteering can bring. Volunteering not only benefits you on a personal level it can also have a huge positive impact on your career. We look at the reasons why you should consider volunteering:

It gives you the opportunity to explore new areas of work 

If you are interested in working in a different sector or industry, but are not sure if it will suit you, then volunteering can give you a great insight into what it will be like working there. Okay, you might only be doing a couple of hours a month but it is better than entering into a new area totally blind. For example:

“Liz, had worked as a IT Consultant in the Financial Sector for over 15 years. For the last 5 years she had wanted to move into the non-profit sector, but the security of her current position was holding her back. The company she was working for had partnered with a local cancer charity and they were looking for volunteers to help out for a few hours a month. After six months of volunteering with the charity, Liz made the decision to leave her job at the bank and took up a position as IT Manager at a charity supporting disadvantaged children. According to Liz, this was the best decision she ever made.”

It increases your professional network

Is your professional network made up of a diverse range of people? Probably not! We do tend to connect with people with whom we have things in common with. By volunteering you are in a position to build up your professional network that consists of people from varying industries and whom have diverse skills and experiences.

Volunteering could also bring you into contact with industry and regulatory leaders, all of which goes towards building up your profile image.

Volunteering is a great marketing tool

There is no doubt that volunteering looks great on your CV and professional profile. It shows employers that you are willing to put in the extra effort and put yourself forward for tasks that are outside of your comfort zone. Having somebody with a ‘can do’ attitude in a team is a valuable working skill and motivation for others.

If you are going for a role in which you have little work experience but have some volunteering experience the employer will feel more comfortable that: you have some knowledge about the role, and experience working in this particular field.

A survey by Timebank found that 80% of employers value volunteering experience on a candidates CV . Plus, over 70% of employers believe that those who have volunteer experience have a greater chance of earning a higher salary. Who can argue against these benefits.

It teaches you new interpersonal skills

Volunteering brings together a diverse range of people, including people you might never normally interact with. This diversity could mean that you have to change the way you interact and communicate with others. This includes all communication mediums: verbal, listening and written.

For example in your paid job you might be a manager; telling people what to do and making tough decisions, but in your volunteering role you might be on the end of a phone listening to people talk about their worries and issues and then offering support and guidance based on your assessment of the situation.

Volunteering is also great for developing empathy and understanding, something that can often be lacking in the workplace.

Click here for more information on Volunteers Week.

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