Common business expenses

Common business expenses


The importance of business expenses
Claiming business expenses lowers your tax bills and is an easy way to be tax efficient. The guides below contain more information on allowable business expenses. 
  1. Introduction to business expenses
  2. Property related expenses

Accommodation

If you stay overnight for the purpose of your business, you can claim for the cost of hotels and B&B’s near to the place of work provided you have another principal residence.
It is important to remember that there must be no personal benefit to any claim such as providing residence for family members, i.e. it must be necessary, wholly and exclusively for the purpose of the business.

Advertising & Marketing

You can claim for:
  1. advertising in newspapers or directories
  2. bulk mail advertising
  3. website costs

Assets

An asset is something of value that is owned by your business such as computer equipment or machinery. An asset is often described as something that has value and that is able to add value to your business, for example, a video camera owned by a media company. The camera in its own right is owned by the business and has value plus it is used in the day to day activities of the business to add value.

An asset is recorded in Provestor in a different way to an expense. When you record your asset it will be included in your asset register.

Bank charges

You can claim business costs for:
  1. bank, overdraft and credit card charges
  2. alternative finance payments, for example, Islamic finance

Books & Magazines

Provided the purchase is necessary to conduct the activities of the business, the item can be claimed. To give an example, if a technical manual is purchased specifically related to work being conducted, it can be claimed.

If however a book or magazine is of benefit personally or is to aid in the development of a new skill, the item will not be tax deductible. In such cases, if it is paid for by your company and enjoyed by you personally it will need to be captured on a P11D for the benefit in kind and result in additional tax and NI liabilities. In these circumstances, it is probably best to pay for the item personally.

Broadband / Internet

If the broadband contract is in the company name and therefore invoiced to and paid by your company, then the full cost can be claimed even if there is a small amount of personal use.

If the broadband is billed personally and the contract is not in your company name, then only the portion of business use can be claimed. This must be worked out and evidence provided if requested by HMRC.

Car hire

You can claim allowable business expenses for:
  1. vehicle insurance
  2. fuel
  3. hire charges
  4. vehicle licence fees
You cannot claim for:
  1. non-business driving or travel costs
  2. fines
  3. travel between home and work

Car parking

Car parking can be claimed for qualifying business journeys that form part of business activities, i.e. to view a potential property purchase.

Christmas / annual events

An annual event such as a Christmas party can be claimed provided:
  1. It is an annual event such as a Christmas party or summer barbeque
  2. It is open to all employees
  3. The cost per head does not exceed £150 (including VAT)
If the £150 is exceeded then tax must be paid on the whole amount, not just the amount that exceeds the £150. It is not an allowance so it cannot just be claimed and it cannot be offset against the cost of more expensive events.

You can also provide more than one annual event during the tax year provided the combined cost of the events does not exceed £150 per employee. The event is not just limited to the cost of the entertainment, it can include the cost of accommodation, travel etc.

The partners of employees may be invited, again provided the same is offered to all employees. Where a partner attends they also receive a £150 allowance – that’s £300 in total per couple.

Client entertainment

Typically entertainment of a prospective or existing client is not a tax deductible expense and although it can be paid for by your company, no corporation tax relief will be given.

Clothing – uniform and protective

You can claim the cost of either of the following:
  1. necessary protective clothing to conduct duties such as safety footwear or glasses
  2. work uniform is worn whilst carrying out your duties, for example, a coat that carries a distinctive logo of your company

Company startup fees

Business set up costs can be claimed as business expenses. Any expenses that are paid for using personal funds should be documented and claimed for when the company starts trading. You do need to remember a few rules when claiming this type of expenses:

For corporation tax purposes the expense must be no more than 7 years and for VAT purposes no more than 6 months before you started trading. In reality, it would be best to concentrate on the expenses incurred 6 months or less prior to the start of trading.

Company hardware and software

You can claim expenses for:
  1. computer software your business uses for less than 2 years
  2. computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years)

Congestion charges

If you are using your own vehicle to travel on business and have congestion charges that need reimbursing, then you must reimbursement on form P11D. You don’t have to deduct or pay any National Insurance or tax. However, if you are using a company car then for business purposes that you can claim for the amount and will not have to complete a P11D form.

Course Fees

Provided the training is work-related to upgrade a current skill and not to develop a new one, the cost of the training can be claimed along with costs associated with the training such as books or additional travel costs incurred.

Credit and Debit card charges

You can claim business costs for:
  1. bank, overdraft and credit card charges
  2. alternative finance payments, for example Islamic finance

Donations to charity

Your limited company pays less Corporation Tax when it gives the following to charity:

  1. money
  2. equipment or trading stock (items it makes or sells)
  3. land, property or shares in another company (shares in your own company don’t qualify)
  4. employees (on secondment)
  5. sponsorship payments
You can claim tax relief by deducting the value of your donations from your total business profits before you pay tax.

Equipment repairs

You can claim expenses for repairs and maintenance of business equipment.

Eye tests

If you regularly use a computer in your day to day activities then the cost of an eye test can be claimed. The cost of glasses, however, cannot be claimed for unless they are prescription safety equipment.

Gifts

Gifts to customers are not a tax deductible expense unless they are promotional gifts worth less than £50 and carrying a conspicuous advertisement for your business.

Glasses

In most instances, glasses and contact lenses cannot be claimed as a business expense. Even if you require glasses to use a computer to fulfil your company activities, chances are that you probably use them outside of the work environment too, e.g. for reading, therefore they cannot be claimed for.

If however a prescription is required for glasses that are solely to use a computer for business purposes and they are not used elsewhere, then this is allowable provided you have evidence to support it. Other examples would be welding or safety glasses.

Hire purchase (in the company name)

You can claim business costs for:
  1. hire purchase interest
  2. alternative finance payments, for example Islamic finance

Home Office

To claim for Use of Home as Office Expenses, as a director or employee of a limited company, you must undertake substantive duties related to the main trade of your business at home.

HMRC allow a flat rate claim of £4 per week for home expenses without the need for keeping receipts but it is possible to claim more for home expenses. 

Insurances

Insurances required by your company to conduct its duties such as Professional Indemnity, Employers Liability and Public Liability can be claimed for.

Health insurances policies are not classed as a business expense and are therefore not tax deductible.

Interest on business loans

You can claim business costs for:
  1. interest on bank and business loans
  2. alternative finance payments, for example, Islamic finance

Mileage expenses when using personal vehicle

Mileage claims can be made for business related travel only. Often the easiest way to claim for travel costs is to use a personal vehicle and claim for the mileage at the HMRC approved rates. The advantage of using mileage rates is that they are based not just on the cost of fuel, but also costs such as insurance, road tax and maintenance, therefore it saves you having to keep details of your actual motoring expenses.

Mileage rates are used to work out the amount that can be paid free of tax under the AMAPs legislation. The current rates for use of a personal vehicle are:

First 10,000 miles 
Car 45p
Motorbike 24p
Bicycle 20p

10,000+ miles
Car 25p
Motorbike 24p
Bicycle 20p

Using the mileage log in Provestor makes this really easy – the claims are paid back automatically to the employee on the payslip plus it keeps track of the 10,000 mile limit and adjusts the rate accordingly. 

As with all expenses, HMRC expects you to be able to provide evidence to support mileage claims, e.g. a mileage log which is accessible in your Report Centre. If you do not maintain a log and cannot provide it to HMRC if requested, then Income Tax and National Insurance will be due on the mileage payments.

Mobile and smartphones

If you need a mobile phone for your business, the simplest way to claim is to purchase it through your company and have the contract in your company’s name. This way, even if there is a small amount of personal use, the purchase and contract costs can be claimed.

If the contract is in an individuals name and not the company, then only the calls made related to the business may be claimed. If this is the case then an itemised bill will allow such calls to be identified. If the contract has inclusive minutes and only the inclusive minutes are used in a billing period including business calls, then no claim can be made. HMRC are likely to take the view that no additional expenses in making business calls have incurred and therefore a claim is not allowable.

Office rental

You can claim expenses for:
  1. rent for business premises
  2. business and water rates
  3. utility bills
  4. property insurance
  5. security

Pension payments

If your company is to make employer contributions direct into a pension scheme, these will be tax deductible. You should always seek financial advice from an Independent Financial Advisor to determine what is the best strategy for you, be it personal or company pension contributions.

Postage

You can claim expenses for postage as this falls under stationary.

Professional fees and subscriptions

If you are a member of an HMRC approved professional organisation related to your business activities, then the fees can be claimed.

You may get tax relief on professional fees and subscriptions if:
  1. you are registered as a member of the organisation because it’s necessary for your work and,
  2. HMRC has approved the organisation
  3. HMRC approved organisations can be found here.
You cannot claim fees and subscriptions paid to an organisation that HMRC hasn’t approved or if the subscription is a life membership.

Software (installed and online / subscription)

You can claim expenses for:
  1. computer software your business uses for less than 2 years
  2. computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years)

Stationery

You can claim expenses for:
  1. phone, mobile, fax and internet bills
  2. postage
  3. stationery
  4. printing
  5. printer ink and cartridges

Travel and Subsistence

The costs of travel such as train tickets and taxi fares that are necessary for the provision of services and operation of a business can be claimed.

If you are staying away from home then the cost of accommodation, breakfast, lunch and evening meals can be claimed provided the costs are not excessive. Meals do not have to be purchased from a restaurant, therefore, a pre-packed sandwich from a supermarket would be an acceptable alternative. You cannot claim for ingredients to make a meal yourself.

Disclaimer
The guidance on what are allowable expenses is complex and needs to be considered based on individual circumstances. Provestor cannot be held responsible for the tax status of any expense claims made. The information provided on this page is for the guidance only.


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