Business Expenses - What’s allowed and what isn’t

You are self employed or maybe you are a new start up. You know that you can claim some business expenses but which ones are allowed and which ones are not? This article will help you.

What are allowable expenses?

Allowable business expensesare purchased products or services that help keep a business running such as stationery, phone bills, and computers. These expenses are deducted from income when calculating taxable profit so you don’t pay tax on these purchases.

What business expenses can I claim?

There are two different expense categories: revenue expenses and capital expenses.

Revenue expenses tend to be purchases that last for a short period of time, often being used immediately and for general operational matters – these include office supplies, rent, insurance, heating, and travel.

Capital expenses are expenditure on assets that are likely to be used for a longer period of time such as IT equipment or or office furniture. These qualify for capital expenditure tax relief.

What about expenses incurred before I started my business?

It’s likely that you will need to make some purchases in order to start trading. These are known as pre-trade expenses and they can include privately owned items that are being used for business purposes. The general rule is that you made the purchase within 7 years of starting trading, then they can be claimed for tax relief.

There are 5 fundamental rules to follow when determining if an expense is allowable:

You can only claim for the expenses you incur wholly and exclusively during the everyday running of your business.

You cannot claim for expenses that have a dual business and personal purpose e.g. if you extend a business trip abroad for pleasure, you can only claim for the business days.

Business expenses can be paid through your company’s bank account, or you can reclaim the cost and be reimbursed via your company.

The majority of limited company expenses can be offset against your company’s corporation tax liability – although there are some exceptions such as business entertainment.

You need to maintain an accurate record of running costs to justify your actions if HMRC query your claims.

The following is an overview of the revenue expenses that you are allowed to claim tax relief on. If you are usnsure, check with your accountant before spending any money.

Wages, salaries and related staff costs including pensions, NICs and agency fees
Business Premises costs includinginsurance, rent, rates, power, water, repairs
Company cars and vans including insurance, fuel, recovery service membership
Travel costs including hotel accommodation on business trips meals for overnight travel, visas
Advertising and marketing
Other office running costs including phones, internet, printing, postage
Professional fees including accontants, solicitors, architects etc.
Banking and other financial charges including finance agreements and credit card fees

Did you know? If your employees use computer screens for a large part of their day, they can claim eye tests as well as health checks as limited company expenses. The cost of prescription glasses or contact lenses can also be claimed as business expenses but only if they’re used strictly for screen-based work as part of their employment.

Which expenses are not allowed as tax relief?

There are some disallowable expenses which do not attract tax relief. In general, these are expenses that are partly a business expense and partly a personal expense. Examples include:

Business entertainment
Childcare costs
Clothes unless it is for a branded uniform
Fines and costs from breaking the law such as car parking fines
Charitable donations, with the exception of small charities
Political donations

If you have any questions about what is and what is not allowed to be claimed as a business expense, do call us on 01992 444466. We’re accountants for business and charities, and we’re here to help.

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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors