The official new financial year is upon us once again. You may be busy filling in your profit and loss accounts for the year and perhaps planning ahead to make sure you’ve got everything ready for the next 12 months. But do you know what you can claim as an allowable business expense?
The UK’s small businesses are said to be paying millions of pounds of tax they don’t need to. Our handy guide will help you navigate the often-tricky world of expenses.
Claiming the right, allowable expenses will reduce your profit, which means you’ll pay less in tax. It’s important that whatever you claim for – however small – is wholly for business purposes. And remember to keep the receipts (for at least six years if you are a limited company; five years for sole traders).
Whether you’re a sole trader or a limited company, we’ve got you covered.
From gardeners needing tools to tech people needing, well, tech, most business owners need equipment to do their daily duties. All the things you need to do your job are classed as an allowable expense. You can also claim a proportionate amount for items that play a bit-part role in your work, like chairs or furniture. This also extends to things like stationery, stamps and so on.
Travel and accommodation
If you travel to a temporary location for work, you can claim the cost of the travel (including parking, rail fares and taxis) and accommodation if you stay over. The current allowable mileage rate is 45p per mile on the first 10,000 miles and 25p thereafter. This doesn’t include your daily trips to the office or everyday travelling. There are also separate rules for company cars, though, which means you’ll likely just be able to claim the cost of the fuel. As a limited company, you’ll also be able to claim for costs like insurance and breakdown cover, too.
If you’re a sole trader and work from home regularly, you can claim for a proportion of the costs to run your home. There are a couple of ways of working this out – through a flat rate, or as a percentage based on the number of rooms in your home.
The flat rate allows you to claim up to £26 a month. The other method will need you to work out how many bedrooms and reception rooms are in your house. So, if you have three bedrooms, a lounge and a dining room (and you work in one of those rooms), you’ll be able to claim a fifth of your gas, electric and water bills. You can use this method to claim back any interest you have paid on your mortgage, too.
Marketing your business
Anything you spend to promote your business is an allowable business expense. This includes any leaflets, website charges, business cards, advertising space and so on.
Whether you’re a limited company or a sole trader, you can put membership subscriptions on your business. This is for official professional bodies like the Chartered Institute of Public Relations, the Law Society or the Institute of Packaging. A full list is supplied by HMRC.
You can claim for your phone bill, landline and broadband costs, just as long as they are wholly used for work. If they are used for part-work, part-personal then you can claim for the work-related part.
If you are a limited company, you can contribute up to £40,000 towards company pension schemes tax-free. Unfortunately, sole trader pension contributions are not an allowable business expense.
You can claim for the cost of all training, just as long as it’s related to your work.
You can claim the cost of an eye test back but not the cost of the glasses themselves, unless you need to wear them solely for work purposes.
This is a tricky one, but generally entertainment expenses are not allowable expenses and won’t reduce your tax bill. There are exceptions, though, like limited companies being able to host an annual event for its employees at a maximum cost of £150 per head, inclusive of VAT.
If you are a limited company, you can also give a tax-free gift (not cash or vouchers) to employees as long as it costs less than £50, isn’t a reward for their performance and is not part of their contract.
Yep, you can claim back these, as well as any interest.
Donations to charity
If you are a limited company, you can give some of your profits to charity as an allowable business expense. However, this does not apply to sole traders.
If you find all of this mind-boggling, don’t worry. You can claim the whole cost of accountancy as a business expense. Just make sure you keep accurate records so it’s easy for them to understand.
This article is only provided as guidance and was correct at the time of writing. For official, up to date information, visit the government’s dedicated website or contact a qualified accountant.