When it comes to claim expenses, the golden rule is, you can only claim for expenses which have been incurred wholly, exclusively, and necessarily during running your company. You cannot claim for expenses which have a dual purpose (i.e. for both personal and business use) except few exceptional. It is very important, to keep all your receipts and invoices to prove that any claims you have made have been legitimate. In principle, your company can deduct from turnover any type of expenses which are not Capital expenditures or specifically disallowed by HMRC.
Here are some of the core business expenses which can set off against Corporation Tax (unless otherwise stated plus may be others not listed here specific to your business):
- Wages / Salary for third parties on payroll includes:
- Director salaries
- Pension contributions (via an approved scheme)
- Employers’ National Insurance Contributions (NICs)
- Subcontractor costs – anyone you bring in to do some work for you or on your behalf. (make sure you receive an invoice or receipt for monies paid)
- Accommodation – costs incurred when away from normal place of business (although you must not exceed 24 months at a ‘temporary workplace’). If you need to pay for accommodation, then you can claim the expenses as tax deductible if they are exclusively for the purposes of your work. If you are using the accommodation for a mix of business and personal use, then you must calculate the proportion of business use and claim for this proportion only. HMRC advise that if a period of continuous work lasts more than 24 months at a single workplace (ie. client site) then that workplace is not temporary, and you cannot claim expenses, subsistence, and tax relief. A period of continuous work means 40% or more of your time. So, if you spend more than 40% of your time at a client’s site, you can only claim expenses, subsistence, and tax relief for a period of 24 months. After 24 months, or when you become aware you will be spending more than 24 months at a client’s site, your workplace is permanent, and you cannot claim expenses
- Incidental overnight expenses of £5/night (£10/night if overseas) can be claimed as a flat rate if you are working away from home.
- Travel/Transport
- If you are using own vehicle – mileage allowance of 45p/mile for the first 10,000 miles, and 25p/mile thereafter. 20p/mile rate for bicycles.
- Alternatively, you can claim for ‘actual’ – A percentage according to usage for business of
- Vehicle purchase cost
- Insurance
- Road tax
- Fuel
- Maintenance and servicing
- Parking for business
- Any other travel costs which are incurred while running your business
- Training course fees if the skills are relevant to the business and are for ‘upskilling’. Qualifications for a new skill (e.g. initial electrician training) are allowable only as a capital cost.
- Tools and Equipment and safety equipment (inc first aid kits),
- PPE (personal protective equipment) – work boots, Hi-Vis workwear, gloves, waterproofs, overalls, etc
- Computer/Software and similar equipment for use in the business e.g. laptop, pc, printer, scanner, chargers etc.
- PPS (post, printing, and stationery) Stationery, postage, and printing costs.
- Insurance – Business insurance, such a professional indemnity insurance.
- Memberships & Subscriptions Any memberships to professional or trade bodies and subscriptions to professional or trade publications. Also, business magazines and books.
- Professional fees, such as accountant or solicitor.
- Telephone and broadband packages (if the contract is in the company name).
- Mobile and Smartphones (if the contract is in the company name). The cost of business calls can be reclaimed on a residential phone bill.
- Home office costs (a flat £4/week without receipts is allowed by HMRC or work out a proportion of the household bills).
- Advertising and marketing – Costs of advertising and marketing your business including standard costs e.g. Business cards, and online advertising e.g. google ads
- Business gifts up to £50 per individual are allowable before more complex rules apply. HMRC state ‘A gift of alcoholic drink, tobacco, food or an exchangeable voucher is not tax-deductible unless exceptionally it is a trade sample. Gifts which carry advertising – such as stickers, mugs, diaries, tax cards, keyrings, are generally allowable as advertising and promotion costs.
- Bank charges – authorised bank charges and fees are allowable
- Entertaining clients, customers or third parties – you should include this as a business expense, but this is not an allowed expense. If you hire a venue for an event, then tax relief may be claimed on the cost of the venue
- Staff –
- Entertaining staff – this is allowable for tax purposes as staff welfare. This only applies to official employees, not freelancers/subcontractors. There is also a Christmas party exemption for employees of £150 per person per year.
- An eye test for employees who use computer equipment.
- An annual private health check for employees.
- Capital allowances (depreciation of assets).
- Hire purchase agreements (in the business name).
- Company car expenses (although there is a benefit in kind charge for private use).
- Food and Drink / Subsistence – HMRC rules say “everyone must eat in order to live and such costs are normal costs of living incurred by all and not incurred for the purpose of trading”.
This means that because you derive some personal benefit (you eat to stay alive) and you are not eating just to do your job, the cost of food and drink is not wholly and exclusively for the purpose of your business and cannot be included as an allowable business cost. Some common expenses claimed for incorrectly include:
- working out of your local coffee shop. You buy coffees and food/snacks. The cost of your food and drink is not allowable for tax but should be included in the accounts as it is a business expense. Just be aware you will NOT get tax relief on the cost.
- You spend the day working at a client’s site close to home but pop out to buy coffee and/or lunch. The cost of your food and drink is not allowable for tax but should be included in the accounts as it is a business expense. Just be aware you will NOT get tax relief on the cost.
- You attend a local networking event, and the entrance fee does not include refreshments so when you get there you pay for your coffee. The networking fee is allowable, but the cost of your drink is NOT.
- You work from home and order in food because you are got a deadline to meet and no time to cook. The cost is not allowable.
- Some allowable food/subsistence costs – Be warned about claiming subsistence for locations too close to your base of work as these may not be allowed.
- If you are staying away from your usual base overnight on business for example: You live and work in and around Winchester but are required to travel to Birmingham for a two-day conference. You would be allowed to claim “reasonable” costs for the evening meal and breakfast, (please note alcohol is not subsistence unless it is purchased with a meal and even then, it must be reasonable e.g. one drink or half a bottle of wine).
- If you make a journey that is outside your normal pattern of business activity for example: You run a coaching and mentoring business from your home in Winchester. If you had to embark on a three-hour drive to attend a CPD course and stopped off at a store en-route to buy lunch – the cost of lunch would be an allowable deduction.
- If you are running a business that is by nature itinerant This would involve running a business where you did temporary work at a variety of locations without visiting the same client on a regular basis. Examples include: a party entertainer or a jobbing gardener.
Unfortunately, HMRC does not give precise guidance as to what constitutes “itinerant” or “reasonable” when it comes to costs. If your circumstances are not straightforward talk to ZATRS Accounting about what you can and cannot claim. And do not forget to keep all your receipts.
Share
