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Contractors - fancy claiming tax free expenses for staying overnight with friends and family?

freelancesupermarket.com newsroom

RSS 18 September 2009
The PAYE expenses system in the UK is tightly governed by HMRC, who have produced an abundance of online references and how to guides.

For contractors, the rules governing expenses are pretty much exactly the same as those that apply to permanent employees (unless of course you are an MEP, in which case you play by an entirely different set of rules!).

Most will be familiar with the type of expenses that can be claimed - the golden rule generally being that for an expense to be allowable for tax purposes, it must have been incurred wholly, exclusively and necessarily in the performance of your duties.

As well as the usual suspects (mileage, travel and subsistence), there are some quirky little expenses that can be reclaimed from your company that not all will be familiar with. For example, when contractors who work away from home decide to stay with a friend or relative rather than in a hotel or lodging, they can claim a contribution from HMRC to cover their costs. This 'contribution' is usually in the region of £25 a night but can vary depending on your own circumstances.

HMRC declares that an employer is required to reimburse any costs incurred by an employee from staying in a hotel as business expense, and contractors have just as much right to claim such payments as regular employees do. In fact, by staying with friends and family not only do you enjoy the social company on those lonely nights away from home, but you also save your employer (whether that's an umbrella company or your own limited company) the cost of an expensive hotel room.

If you wish to treat the friend or relative to an evening meal as a form of payment, HMRC will honour a meal expense of up to £25 (for your meal only). This however is only a guideline figure as conditions in paying for food may vary - a meal taken in a major city would be significantly more expensive than a meal in a rural location. Contractors should always remember to take a prudent view and record detailed expenses, including VAT receipts for any claims.

For longer term arrangements, you may wish to considering paying rent to a friend of relative. How much depends on your own personal preference but as a rule any rental payments should be less than hotel costs in the area, and not any more than the £4,250 per annum your friend or relative can receive tax free each year under the 'rent-a-room' scheme. Additional charges for services such as laundry may lead to complications as the friend or relative might need to declare these items on their personal tax return.

To prevent any unwanted interest from HMRC and to demonstrate a clear record of compliance, we recommend that you establish a set of company guidelines on how much should be claimed when staying overnight with friends or relatives. If you're working through an umbrella company, such guidelines should already been in place. As with most things in this industry, it's up to you to take responsibility and in the case of overnight expenses, claim what's rightly yours. After all, genuine business expenses that you have incurred with after tax money should be repaid to you in full (pre tax) and should not then be subject to further tax and national insurance contributions.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: 4th of July by Betsssssy

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