Tax Allowable Expenses - Reduce Tax Claim Business Expenses

Tax Allowable Expenses - Reduce Tax Claim Business Expenses

What is allowable business expenses and what is not allowable is a sticky issue, so let’s look at what are NOT legitimate business expenses. Some expenses are very easy to define and some are less so, for example, sometimes it is tempting to pay for personal things through the business, and at times, particularly if you have a home office, there are expenses that straddle both the private and business categories.

If you do not have dispensation, you need to fill in a form P11D to claim expenses; a separate blog about this issue has recently been posted. Below are expenses you should be wary about claiming.

To find a full list of allowable expenses please see the list of expenses on the resources area of the website. Confusion with expenses is less likely to occur if you make a strict rule to never buy things for private use through the business. It’s a good idea to pay company expenses through a company fund, which would be via a company bank account or card.

Some of the common areas of confusion are with technical services:

BEWARE OF LINE RENTALS

1. Personal landline account
2. Personal broadband account
3. Personal mobile phone contract

It is better not to claim the line rental on any of the services listed above if the account is in anything but the business name, even if they are used solely for business purposes. Call charges, however, can be claimed provided you keep a log of calls or you know the percentage usage. We strongly advise clients to get a mobile phone contract in the name of the company, and if your business landline usage (telephone and/or broadband) is high, it is better to have an additional landline installed purely for the purposes of business.

Use of home as office

Working from home is another area that requires accurate record keeping. We are aware that for many small businesses and contractors, working from home is essential. If you are claiming use of a home office (remember this applies to directors and business owners only and not employees) then please make sure you fill in the "use of home as office" template. If you are not a business director or owner, HMRC recommend £4 per week towards the cost of your home office. See the article of February 2011, re-issued on the blog "Landmark Victory for Tax Payer".

Publications and courses

In areas such as stationery, books, magazines, and subscriptions; courses, seminars, training, and trade fairs, of course, you must be able to show that these are solely for the purposes of running your business. Remember then that if you claim for a ticket to visit the Ideal Home Exhibition, HMRC would expect to see that your business is concerned with interior decoration or that you are retailer of home wares; similarly if you claim for, say, an intensive course in Japanese, you would have to show that this is solely in relation to running your business.

Accommodation, foreign travel, and meals rates

In the area of "overnight incidental accommodation" there are benchmark scale rates to guide you, but do be aware that, if asked, you would need to be able to prove you stayed ten nights at a five-star hotel in Hawaii on business! For more about travel expenses and benchmark scale rates see our blog about dispensation for foreign travel expenses.

Subsistence/meal rates and travel

This is the area in which the unwary can fall foul. Remember that the meal rates kick-in when you are away from your office/home for a period of over five hours or more, not when you pop five minutes down the road for a sandwich. Similarly travel is NOT an allowable expense to and from work, but is allowable from work to meet a client. Where small business and contractors are concerned, if they work mainly from a home office from which they leave to meet a client or work onsite for the client, then travel expenses to and from the client’s site are allowable.

Office equipment

With hardware such as computers and other office equipment make sure that these are solely for the purpose of running your business: if you claim for a hairdryer, for example, HMRC would expect to find a hairdressing business, and questions may well be asked when they investigate to find that you’re an IT expert!

Entertainment and hospitality

Reasonable entertainment expenses are allowable, at trade fairs for example, or to entertain a business client from overseas. Ensure these expenses are paid for the by the company and that they are solely for the purposes and related to your business.

I hope this clarifies matters about expenses, or at least raises some questions that you might like to ask. If you are ever in any doubt about any aspect of allowable expenses, please contact your account manager who will discuss and/or verify your expenses claims with you.

Tax Allowable Expenses - Reduce Tax Claim Business Expenses

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.