Business Expenses – what are they?

We’ve put this article together because we get a lot of enquiries around this subject. What can you claim? What is deductible? What allowances are available to me?

It’s a subject that is very important but not a lot of business owners are aware of what they can and can’t claim as a business expense. So buckle in…this is a meaty article!

So let’s kick off with what you can’t claim for.

Deductible business expenses:

The following are typical expenditures which HMRC disallows:

  • Depreciation of assets (see Capital Allowances at the bottom of the article)
  • Staff remuneration that’s not paid within nine months of the end of the year
  • Parking and driving violations
  • Movements in general provisions
  • Entertaining clients and suppliers
  • Childcare services
  • Tuition

So what expenses can I claim?

Thankfully HMRC is fairly flexible on this as long as you can defend the inclusion of the item as being essential to your business. Common examples include:

01. Travel expenses you can claim costs for flights, trains, accommodation, meals when you travel to a temporary location for business-related purposes.

02. Accounting fees – You can claim tax relief for the total cost of your accountancy fees if your accountant is working wholly on your companies, partnerships or sole trader affairs. If the accountant charges for any time spent on your personal matters (e.g., preparing your personal tax return) then it will need to be recorded as a ‘benefit in kind’

03. Legal fees – You can claim any legal costs you incur in the course of business.

04. Company formation fees – all costs related to company formation are allowable deductions.

05. Business mileage expenses – These are subject to change so please check for the current rates.

06. Utility costs to keep your business premises running – this includes rent charges, power, heating, gas and all other costs needed to maintain your building premises

07. Christmas party (yep!) – Your employees can invite a partner, but the cost must not exceed £150 per head

08. Use of home as an office – there are multiple options here so best to speak to us about your situation.

09. Gifts and trivial benefits – You don’t have to pay tax on a gift or benefit for your employee if all of the following apply —

  • It cost you £50 or less to provide
  • It isn’t cash or a cash voucher
  • It isn’t a reward for their work performance
  • It isn’t in the terms of their contract

This is known as a ‘trivial benefit’ and you don’t need to pay tax or National Insurance.

Other typical costs which can be claimed

  • Bank charges
  • Delivery charges
  • Equipment costs
  • Stock – that is being used for resale
  • Telephone and internet
  • Stationary and postage
  • Professional subscriptions
  • Capital allowances
  • Insurance
  • Interest payable on a business loan
  • Newspapers and journals
  • Computer software
  • Staff training
  • Website maintenance

Keeping records of my business expenses:

Keeping accurate records of your costs is always important. NOTE: there are no government rules on how you must keep records. You can keep them on paper, digitally or as part of a software program (like Xero). HMRC can charge you a penalty if your records are not accurate, complete or readable. You must keep records for six years from the end of the last company financial year they relate to.

Claiming expenses as a Limited Company:

You can either pay your company’s expenses directly through the company bank account, or you can pay them personally as a reimbursed expense.

Capital allowances:

Depreciation of fixed assets is not allowable for Corporation Tax purposes; this is because depreciation can only ever be an estimate of the reduction in the value of your assets and can be subjective. However, capital allowances may be available to take account of the cost of plant and machinery used in the business.

If you need some advice regarding your business expenses, please do not hesitate in giving us a call and dropping us a message. No question is silly in our book – we know it can be daunting out there in the world of business!

Here are some free resources we have that may be useful to you – share them with your friends and colleagues!

– 7 Steps To Increasing Profits
Get Started With Xero
COVID-19 Resources
Business Resources

Kind Regards,
The Team at London Accountants

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