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A guide for contractors on changes to claiming expenses


Expense claims are important for contractors and key to ensuring that only the right amount of tax is paid at the right time.

Regular claims for genuine expenses will ensure you obtain tax relief and that unnecessary tax is not paid by your company or you.

But did you know that from 6 April 2016 the ways in which contractors claim expenses will change?

HMRC will be clamping down on anyone who abuses the system, so what does this mean for all of the compliant contractors and what changes will they need to be aware of? In this blog we highlight what’s to come and how to best prepare yourself now.

Goodbye dispensations

From 6 April 2016 all existing dispensation arrangements which currently allows expenses to be paid without being reported to HMRC will stop and only reportable expenses will be eligible. The decision if an expense is claimable or not will fall with the employer (your company), but beware! Get it wrong and your company will face a penalty from HMRC.

If you’re worried about claiming dispensations in the future, make sure you seek the professional advice of a contractor accountant.

Benchmark Scale Rates (BSR)

If you are currently using BSR then you’re sure to be wondering what will happen to it with the removal of dispensations. Agreements will only be given until the end of the existing arrangement. Thereafter, any existing agreements to use BSRs must be confirmed by HMRC and If you continue to use BSR without notifying HMRC, then those payments will be taxable on the employee.

A new expenses regime?

One of the major changes that will come into play next year is the limit placed on when an expense can be considered as payable by the employer tax free. This new change in particular is aimed at Umbrella companies that practice abusive expense claims. This change means that Umbrella workers will only be able to make mileage claims, whilst all other expense claims will no longer reduce the tax paid at source. Instead, each individual Umbrella employee must submit a separate and personal claim to HMRC to receive tax relief. That claim must only include genuine expenses and will be scrutinised by HMRC.

Travel and Subsistence

The Summer Budget confirmed that HMRC will consult on changes that could lead to further restrictions (and possibly even an outright ban) on Umbrella workers’ ability to claim travel and subsistence (T&S).

Whilst Umbrellas could face an outright ban, Personal Service Companies (PSC) could see a tightening on the rules surrounding T&S, whilst facing penalties for getting it wrong.

How can you prepare for the changes to claiming expenses?

       1.     Review your current business expenses

The 24 month rule and T&S - Both will become a greater focus of attention, so how you control the validity of those claims will become a main feature of expenses for the future.

Subsistence claims - If you have not obtained approval to use BSR, then now is a good time to do so. If you already have permission, then consider extending it beyond 6 April 2016. Subsistence claims should always be receipted, even for scale rates. If you don’t have the receipts, make sure you record the nature and purpose of the expense.

Combined personal and business expenses - If you have expenses that span both personal and business purpose, then beware! Always make sure that the personal element is separate and excluded from your claim.

Receipted or non - receipted - Keep all receipts for expenses incurred for business purposes. If you don’t have a receipt make sure you keep a record of the expense, what was purchased, for which purpose and at what cost.

2. Set out an expenses policy for your Limited Company

HMRC will expect each PSC to have an expenses policy and also to be enforcing it. Always maintain full records of your policy to support all expense claims, no matter how small they may be.

3. Ensure expenses that are taxable are clearly identified

When an expense is paid and it’s intentionally part of a director or employee’s pay, always make sure that the expense is clearly identifiable as a taxable benefit and not missed during the reporting process.

4. Ensure that contracts are in the right name

If expenses are paid by the company directly to a supplier, where the contract is in the director’s name, have the contracts changed to the company or ensure that they are reported correctly and only the business element is claimed (and supported by a calculation).

Final thoughts

Since 2010 HMRC have been encouraging all small businesses to improve their record keeping and operate a system of business record checks. You must ensure you are ready for next April’s changes.

Having the correct practices in place will be essential if you want to gain the most tax relief from your expenses. For a more comprehensive guide, download our popular ebrief: Claiming expenses - preparing for the future.

Looking for advice and support when it comes to claiming expenses? Or are you concerned how to changes in April will affect your take home pay? At Intouch Accounting our clients have unlimited access to their Personal Accountants, where they can seek guidance on how best to prepare now for minimal impact come 6 April 2016.

Call one of our advisers on 01202 912 469 or email us at to discuss joining Intouch Accounting today.

Source: Intouch Accounting

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Paul Gough

Paul Gough is the Managing Director of Intouch, which is a specialist provider of accounting and tax solutions to UK contractors and freelancers trading through Personal Service Companies.

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