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✔ Find out what expenses are deductible and those which are not!
✔ Tax Relief
✔ An all inclusive A-Z guide
When you start a business you are never told what you should or shouldn’t be doing financially and as a limited company director, you’re entitled to know what expenses you can claim back and how to include these in your accounts.
When you claim back expenses, any business expenditure which you have paid for personally can be reimbursed by your business. This expenditure will receive tax relief resulting in less tax being paid!
This guide will help you save money and pay less tax giving you the information on what you could be claiming as a business expenses and how to claim it. For it to be classed as a business expense it must be incurred wholly and exclusively for the purpose of the business.
The rules are stricter for employee expenses; they must be incurred wholly; exclusively and necessarily, for the performance of duties. The list of expenses are long and the rules are not always straightforward.
Tax Relief is a way of reducing the amount of tax you have to pay on any profits made. A company’s main extraction of funds is often through dividends and before you are entitled to take a dividend, you must pay Corporation Tax on any profits.
Your allowable expenses reduce the amount of profit which reduce the amount liable to Corporation Tax. The higher your business expenses are, the lower your company profits and tax will be.
Let’s get started....
- Fees from the first advice given before you start
- Business bookkeeping, accounting and tax advice
- Consultancy
- Companies House Fees
- Formation Fees*
- Personal Tax Return
can be paid by the company but treated as a Benefit In Kind (BIK) (will be taxable to you personally and recorded as a BIK) your company will pay NIC at 13.8% on this
- Company Formation Fees
Day 1 expenses claimed by the Director. Your new company can pay the formation fees but they are disallowed in the Corporation Tax Return
- Hotel & rental costs whilst staying away from home, for the performance of duties
- Accommodation associated with a temporary workplace may be claimed, provided the length of contract will not exceed 24 months
- HMRC are likely to question excessive claims for expensive hotels or apartments with more than one bedroom.
- All business advertising spends are generally allowed
- Paid advertising, trade magazines, Google Ads, social media costs, outsourced consultancy
- Promotional Items
- If it is a capital investment
Airfares are allowable if essential for the business duties. Note: If you recharge the expense to your client, even though airfares do not incur VAT, you must charge VAT if you are VAT registered
- All business assets are generally allowed
- Business premises, fixtures and fittings
- Computer equipment, phones, printers etc (>£100)
- Company cars, vans, charging points, cranes, diggers etc all kind of business machines
- Garden office, if you can ‘take it with you’*
For Sole Traders - claim restricted to % of asset that has a business use.
- Capital additions or alterations to your home
hard to argue these are wholly and exclusively business-related and not home improvements
- Risk CGT on sale if you get room/property rated as commercial
- Solar panels to charge company car
- Treatment of Garden Offices may differ by local authority
Charges for an unauthorised overdraft are not allowable. This includes reimbursing charges to an employee (there may be a Benefit in Kind to the employee).
If the book or magazine is for business then the expense is allowable. If it is purchased for personal reasons then it is not allowable and would be classed as a benefit in kind.
If the contract is between the supplier and the company then it is allowable. If the contract is supplied to you personally and not in your company’s name, there will be a benefit in kind charge on the full amount of the expense claimed.
If the gift has company advertisement then it is an allowable expense. Where it is a general gift is made with no company advertisement, then it is treated in the same way as entertainment. Gifts of alcohol, tobacco and food are not tax-deductible. The output VAT is not chargeable on business gifts provided the gift does not exceed £50 per person in any 12 month period. Input VAT may be claimed.
The cost of incorporating a company and setting up the necessary registrations are allowable. The actual formation fee is a capital cost and cannot be claimed.
The cost of preparation and advice around business plans is an allowable deduction.
The cost of using another company to handle your calls is an allowable business cost.
- Mileage Expense (fuel plus wear and tear element)
- Can recover VAT on the business fuel element
- Additional insurance cost for business use
- Repairs, maintenance, MOT, tyres etc
- Car insurance and road tax
- Travel between home and work
For Sole Traders - can claim mileage or % of fuel costs (one method is chosen for the life of the car) and the claim is restricted to % of the car deemed to be for business use.
- 100% car purchase or lease costs*
- Fuel - BIK on the personal element
- Business car insurance
- All MOT, tyres, repairs and maintenance
- Parking
- 50% personal benefit VAT restriction on a car lease
- VAT on car purchase - unless taxi/car hire
- Travel between home and work
- Fines
- Non-business driving or travel costs
- Donations can be paid by the company provided they are to a registered charity and do not put the business into a loss-making position
- Donations include; money, equipment or trading stock, land, property or shares in another company or sponsorship payments
- Donation of shares in your own company do not qualify
For Sole Traders - Not allowed as a business expense. If you pay personally, declare gift aid and claim tax relief on donation in your personal tax return
A gift of up to £50 per year may be made, provided it is not food, alcohol or tobacco. A gift over £50 then the whole amount becomes taxable on the employee. There needs to be a minimum of two employees for this relief to apply.
General business cleaning costs are allowed including home office with receipts. This includes outsourced cleaners or staff on payroll. The cost of cleaning your house is not allowed.
Tax relief on computer equipment may be claimed via capital allowances.
Business consultancy is allowable. Consultants mileage and expenses are also allowable. It only becomes disallowable when the benefit is too personal - there is a fine line between self-development and business self-development.
All direct costs related to the production and delivery of your product or service (including all direct labour expenses.)
For Sole Traders - There might be direct labour costs if you employ staff, but there would be no sole trader wage costs. Drawings are excluded from P&L.
Wages are an allowable expense and the director should be taking at least a minimum salary. The wage amount will be an expense and reduce the overall profit in the year. The National Minimum Wage Regulations will not apply unless there is a binding contract of employment .
- Entertaining clients, contractors and suppliers*
- Payments can be made by the business
- Added back to taxable profits in Corporation Tax Calculation
- For VAT
For Sole Traders - Added back to taxable profits in Income Tax Calculation
- Primary purpose must be staff (on payroll) entertainment
- Where cost does not exceed £150 per head, per year
- £150 inc VAT - part, travel and accommodation
- £150 is a limit, not an allowance so if you spend >£151, then the whole amount becomes taxable
- Primary purpose must be staff entertainment
- VAT cannot be recovered if directors only event
- If the primary purpose is client entertainment
- VAT disallowed on % relating to client entertainment
For Sole Traders - Allowed when Sole Trader employs staff.
- Falls outside the £150 Event allowance
- Classified as a trivial gift if it’s not regular or expected
- Generally accepted as staff welfare cost <£50 per head
- VAT cannot be recovered if directors only meal
- Falls outside the £150 Event allowance
- Lunch provided onside for convenience of employer allowed
- Working lunch offside considered to be a reward for working so creates a benefit in kind
- The employer can pay Tax and NI under PAYE settlement agreement rather than report on a P11D
-- VAT cannot be recovered if directors only meal
- Staff are getting lunch as a reward for a job well done
- Falls outside the £150 Event Allowance
- Performance-related so creates a benefit in kind
- The employer can pay Tax and NI under PAYE settlement agreement rather than report on a P11D
- VAT cannot be recovered if directors only meal
- All costs of putting on training events for staff or clients
- All costs of staff attending events or seminars
- Travel, hotel and subsistence costs
- Friends and family who might travel with you - potential benefit in kind
You can claim for the eye test provided it is necessary for the continued use of visual display equipment in your duties. You can claim the cost of the lenses if required for business however the frames are not allowed even when the lenses are allowed.
Any exchange rates, (approved by HMRC), associated with exchanging business money are an allowable expense. If there is a profit incurred this needs to be declared as an income and tax will be charged.
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