Managing Unexpected Expenses
Managing Unexpected Expenses in Your Limited Company
Whether it’s an invoice you forgot to pay or an expensive piece of equipment that needs replacing, unexpected expenses can be hugely annoying as a contractor with a limited company. But, you can help to soften the blow by knowing how to manage things. Being prepared and able to manage unexpected expenses can be the difference between the expense being a slight annoyance, or a huge issue that threatens your business’ finances.
At Go Limited, our experts are always on hand to help with running a limited company, and today we’re looking at how to manage unexpected expenses as a contractor. With our help and advice, unexpected expenses won’t be something you need to dread, but instead they’ll be an expected part of the ups and downs of running a business
What Causes Unexpected Limited Company Expenses?
Many things can cause unexpected expenses for a limited company, many of which can arise completely out of the blue, with no warning and no time for you to prepare for the cost. Regardless of the type of business you have or the industry that you work in, unexpected limited company expenses are something you need to be aware of. Though they’re - as the name suggests - unexpected, having an idea of where they can come from does make it slightly easier to prepare.
Repairs and Maintenance
It doesn’t matter what you do on a day-to-day basis at work, you probably use some sort of equipment, machinery or tech. Whether it’s an urgent repair to office equipment or an unexpected IT issue, repair and maintenance costs can crop up without warning. These can be particularly costly if they’re urgent and need immediate attention. Even something as small as your laptop suddenly not working can be costly to fix.
Tax Bills
As a limited company contractor, you have to keep on top of your tax affairs, and this means making a payment at the right time. Mistakes in calculating or misunderstanding your tax liabilities can lead to unexpected bills. It’s also possible that an unexpected HMRC audit could surface, leading to additional costs in terms of both fees and compliance.
Legal and Professional Fees
There might come a time when you need legal or financial advice, and this comes at a cost. If there’s a dispute with a customer, client or even an employee, the costs associated with finding support can be higher than you might expect.
Client Late Payments
If you rely on clients paying invoices on time, a delay can lead to cash flow issues, and these issues will be bigger if the client fails to pay altogether. You might find yourself dipping into your cash reserves or savings, or even taking out a loan to cover the ongoing expenses.
Employee Costs
Though a lot of contractors work alone, you might find yourself in a position to hire someone to lighten the load. There are additional costs that come with stuffing, such as recruitment fees. If you already have employees, things such as overtime or having to hire temporary workers during busy periods also costs money.
Supply Chain Cost Changes
If you buy and sell products, your finances are somewhat reliant on the costs dictated by your supply chain. Unexpected rises in the cost of raw materials or supplies can and do happen, leading to increased overheads and reducing margins that you might not have been expecting.
Top Tips for Managing Unexpected Expenses as a Limited Company
As a limited company contractor, it’s important to have a good understanding of your finances, and this includes having plans in place to manage unexpected expenses when they arise - and let’s face it, they’re going to arise.
Maintain an Emergency Fund
One of the easiest and most effective ways to manage unexpected expenses is to build an emergency fund. By setting aside a portion of your profits each month, you’ll create a financial buffer. This can be used for urgent needs and unexpected costs, without taking money away from your day-to-day business operations.
Regularly Review Your Budget
Keeping your business’ budget up to date to make sure you have a clear picture of where you stand financially. Regular reviews allow you to identify areas where you can cut costs or reallocate funds, helping you to better prepare for unexpected limited company expenses.
Invest in Insurance
As a limited company contractor, you need to be prepared to weather the storm should legal disputes, unexpected events and equipment breakdowns. One way of doing this is to invest in insurance, which can help to mitigate the impact of unexpected events. If you already have insurance, take a look at your policies and ensure they align with your business goals and risks.
Negotiate with Suppliers
If unexpected expenses put pressure on your cash flow, don’t hesitate to negotiate with suppliers for extended payment terms. Many suppliers are willing to accommodate businesses with temporary challenges, and some may even offer discounts if you're a long time buyer.
Use Credit Carefully
Though you’ll want to avoid spending more than you can afford to repay, having access to a business credit card can be a lifesaver in emergencies, especially when unexpected expenses are involved. Plus, by setting up a limited company, you benefit from limited liability.This means that your personal assets - such as your home, car and savings - aren’t at risk if the business falls into debt.
Monitor Cash Flow Closely
Cash flow isn’t something that happens in the background of your business, nor is it something you can forget about, or only look at once in a while. Proactive cash flow management can help you to anticipate potential financial issues and plan accordingly.
The Role of Contractor Accountants in Managing Limited Company Expenses
There’s no denying that managing the finances of a limited company can be complex, particularly when unexpected costs arise. This is the case for everyone, even contractors with a good amount of financial knowledge and understanding. But, contractor accountants can provide invaluable support.
Financial Planning and Forecasting
Contractor accountants can help with financial forecasting, helping you to prepare for potential unexpected
limited company expenses and maintain a healthy cash flow. They can also guide you towards building an emergency fund tailored to your business needs.
Tax Efficiency
Experienced accountants understand the tax rules and regulations that are specific to limited companies, and they can help you to minimise your tax liabilities. By making sure you claim all allowable expenses and take advantage of tax reliefs, they can free up more funds for unexpected costs.
Expense Management
From setting up systems to track expenses, to providing advice on cost-saving approaches, contractor accountants ensure that your finances are organised and compliant with HMRC requirements. This reduces the chances of you having unexpected expenses related to tax.
Support During Financial Challenges
If your business faces financial difficulties due to unexpected expenses, an accountant can offer practical solutions. For example, they could help you to negotiate payment plans with HMRC or explore alternative funding options.
Don’t Forget About Allowable Limited Company Expenses
Whether you’re running a large and successful business, or you’re a self-employed contractor running things through a limited company, you may be able to claim allowable expenses. There are a range of allowable expenses that you’re able to claim, and understanding (and then claiming!) them is an essential aspect of managing your business’ finances. Allowable expenses are tax-deductible, meaning they can reduce your taxable profit and help you to keep more funds available to handle unexpected costs.
You’ll be able to claim a lot of your office costs - such as rent, utilities and office supplies - as a tax-deductible expense, as well as travel expenses. This includes mileage, public transport and accommodation for business trips. The cost of buying new equipment and technology is also included, and it covers everything from computers and software, to machinery and tools. Costs related to hiring accountants, solicitors and consultants are also allowable if they’re used solely for business purposes. To put it simply, as long as the expense is for business purposes, you should be able to claim it as an allowable expense.
To ensure you claim allowable expenses accurately, you’ll need to keep detailed records, including receipts and invoices. By doing so, you can reduce your tax liabilities, making it easier for your business to afford unexpected expenses as and when they arise.
FAQ
What are unexpected expenses in a limited company?
Unexpected expenses are unforeseen costs that arise in a business, such as equipment failures, legal fees, emergency repairs, or sudden tax liabilities. Proper financial planning and cash flow management can help a company handle these surprises effectively.
How can I prepare my limited company for unexpected costs?
To prepare for unforeseen expenses, maintain an emergency business fund, monitor cash flow regularly, keep business insurance up to date, and plan for tax obligations in advance. Many businesses also benefit from having a contingency budget.
Can I claim unexpected expenses as tax-deductible?
Yes, many unexpected business expenses can be tax-deductible if they are wholly and exclusively for business purposes. This includes emergency repairs, legal fees, and replacement of essential equipment. Always keep receipts and proper records for tax compliance.
What should I do if my limited company faces a sudden financial shortfall?
If your business is struggling to cover unexpected costs, consider options such as negotiating payment terms with suppliers, applying for short-term business loans, using a business overdraft, or reviewing expenses to cut unnecessary costs.
How much should I set aside for emergency business expenses?
A good rule of thumb is to keep at least 3–6 months' worth of operating expenses in a business savings account. The exact amount depends on your industry, cash flow stability, and potential risks your business faces.
Can I use personal funds to cover unexpected business costs?
Yes, as a company director, you can lend money to your business, which is recorded as a director’s loan. However, repaying this loan should be properly documented to avoid tax implications.
What financing options are available for unexpected business expenses?
There are several financing options, including:
- Business overdrafts
- Short-term loans
- Invoice financing
- Government-backed schemes (if eligible)
- Asset refinancing
What role does business insurance play in covering unexpected costs?
Business insurance, such as public liability, professional indemnity, and equipment insurance, can help cover unexpected costs related to legal claims, damage, or equipment breakdowns, reducing financial risks.
How can I improve cash flow to handle unexpected expenses better?
To maintain healthy cash flow, ensure prompt invoicing, negotiate favourable payment terms, manage supplier relationships efficiently, and track expenses closely. Using accounting software can help keep cash flow under control.
What are common financial mistakes limited companies make regarding unexpected costs?
Some common mistakes include:
- Not having an emergency fund
- Overlooking business insurance
- Failing to forecast cash flow properly
- Ignoring tax obligations
- Relying too much on personal funds instead of securing business financing
Important:
- Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
- When choosing an accountant, look for one with proven experience and expertise in the contracting sector, particularly around areas like IR35, limited company tax matters and off-payroll working. Formal qualifications are important, but relevant hands-on knowledge matters just as much — especially in a complex and fast-changing landscape like this.
At Go Limited, we know how much hard work and passion goes into running a limited company, and we know how much of an impact unexpected costs can have. Regardless of industry or business type, understanding how to manage unexpected expenses can make a huge difference to your success as a contractor, and we’re here to help.
