TAX TIPS
A Guide To Incidental Overnight Expenses & Tax Savings for UK Freelancers
February 01, 2025
The Basics of Incidental Expenses
When you, the freelancer or contractor, find yourself away from home due to business for at least one night, there's good news. Your company can take care of those small but necessary expenditures”think personal phone calls, the day's newspaper, or even laundry services. These aren't just comforts; they're necessities that keep you at your best while conducting business.
Flexible Payment Options
You can pay for these incidental expenses directly from the company's card or cash. Or if you don't have the company card on you, you can use your personal card for the expenses and get reimbursed by your company later.
Staying Within the Limits
To ensure compliance and avoid extra taxation, keep these limits in mind:
- £5 per night for business trips within the UK.
- £10 per night for international business ventures.
Exceeding these limits makes the entire amount taxable, and these thresholds apply to the entire trip, not per individual night. So 10 nights abroad gives you a £100 limit.
An Illustrative Example of Tax Savings
Let's break down a simple scenario where you incur a total of £100 in incidental expenses over a course of a business trip.
- Incidental expenses cost: £100
- Corporation tax saving: 20% * £100 = £20 saved
- Income needed for a dividend: To cover £100 after 33.75% tax = £100 / (1 - 0.3375) ≈ £150.75
- Total tax savings: £20 (corporate) + £50.75 (dividend tax not paid) = £70.75 saved
By putting these expenses through your company, you effectively keep more of your earnings working for you rather than going towards taxes. It's not the biggest tax saving in the world, but it's still money saved and extra cash in your pocket!
How do you claim the tax saving?
Claiming the tax saving in Mighty is incredibly easy, here's how to do so in 3 simple steps.
- Pay for the incidental expenses through your company card, and find the transaction in your bank feed
- Select the transaction and categorise it as a 'Travel' under the Day-To-Day tab
- Click 'Approve' and Mighty will automatically apply the tax savings for you in real time.
And that's it, you've just saved yourself tax 100% legally!
If you're not with Mighty, you should make a note of this transaction, and let your accountant know what this specification transaction is for. They should then be able to claim the exemption and apply the tax deduction manually for you.
Mighty: Your Complete Accounting Partner
Understanding this tax exemption is just one piece of the financial planning puzzle for freelancers and contractors.
Mighty is designed to save you time, money, and stress with amazing software and UK based accountants alwayson hand to help. Discover the benefits of choosing Mighty for your accounting needs here and get a free 30 trial - no credit card required!
