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Knowing what counts as a business expense can save your company a substantial chunk of money when conducting your tax returns.
As well as the many obvious expenses, such as vehicle hire or basic supplies, there are various other goods and services that the HMRC provides relief for.
How Business Expenses Work
As a way to encourage growth for SMEs and the self-employed, the government allows you to claim relief on certain business expenses. This means you’ll pay less tax on overall profits.
There could also be special dispensation depending on what type of company you are and specific industry regulations.
In order to make valid claims, meticulous records and receipts should be kept as proof of your costs. Add the allowable expenses together and include them on your tax return form.
However, if the HMRC feel you are lying or exaggerating these costs and you can’t provide legitimate proof of purchase, there can be serious financial penalties to deal with.
Basic Considerations
The main aspect of working out a business expense is that it must have been ‘wholly and exclusively’ incurred for the purpose of business. In other words, any purchase that could be considered for private gain will not be valid – even if there’s partial gain for the company as well.
Therefore, typical business expense claims can be made up from the following main categories:
- Travel costs – taking public transport for a business meeting
- Office costs – purchasing stationary or a work computer
- Business stock – purchasing items to sell on to customers
- Business premises – paying rent or energy bills
- Clothing expenses – purchasing uniforms for staff members
- Staff costs – paying wages and salaries
- Financial services – paying for business insurance or bank charges
- Marketing – investing in advertising
Although if you’re unsure of any particular expense, it’s best to contact your accountant or the HMRC Self-Assessment helpline for further information.
Further Information
In terms of business travel by car or van, you can claim 45p per mile for the first 10,000 miles and then 25p for each mile afterwards. Travelling by motorcycle, the relief is 24p per mile, no matter the distance.
For those who work from home, there’s the chance to claim on rent or bills by pushing costs through the company name. However, the stipulations around this can be somewhat complicated so professional advice may be needed.
Expenses should only be included in your accounts if they belong in that particular accounting period. If anything overlaps, the expense must be declared in next year’s tax returns.
For mobile bills, only business calls can be deducted. For example, if you incur £120 worth of personal calls on a yearly phone charge of £300, this means that only the remaining £180 can be claimed as a business expense.
Requirements for the self-employed and regular employees will be different to that of limited companies. For more information on this, visit the relevant government websites or speak to your accountant for added clarity.
If you’d like further advice, get in touch today.
If you have more than one business to claim expenses for, you might be interested in How to Work Out Your Taxes When You Own Multiple Businesses.