Are you a business that regularly pays more tax than you need to every year? Do you understand exactly what expenses you can legitimately claim for to reduce the tax you pay? This is where we aim to help you by outlining the top 12 things a business should be claiming as tax deductible expenses. This is not a complete list so do contact us for more help and advice.
What exactly is a business expense?
The first thing to consider is that a business expense is defined by HMRC as something that is ‘wholly, exclusively and necessarily incurred for business purposes’. So if the list of tax deductible expenses below resonates with you, make sure you apply this test first. If your expenses do not meet those requirements, you may still be able to demonstrate that they do so partially and claim the relevant proportion against your tax.
Keep accurate records
Record keeping is particularly important to ensure accurate expenses are itemised in your accounts. And you must retain those records for SIX years. You could receive a penalty from HMRC if you fail to keep your records in order.
Top 12 Tax deductibles
So what can you claim for? Follow our advice and you may save a lot of money in the next tax year.
Taking advantage of capital allowances available for operating your business is an essential part of reducing your tax bill. Most businesses own some physical assets (this does not cover any items that are leased or hired). These could include computers, office furniture, specialist tools and equipment and vans. Also included are fixtures and what are known as integral features on your premises. These include: air conditioning systems, fire and burglar alarms, CCTV systems, fitted kitchens, electrical and lighting systems and so on. All items covered are subject to the Annual Investment Allowance (AIA) giving you the opportunity to offset 100% of the value of your purchased qualifying assets up to £1 million, so clearly an area you must leverage.
If you have bought any cars, have items you use in your business that you already owned or have spent more than £1 million on assets leaving a surplus that cannot be included in the AIA, these assets are subject to written down allowances.
Capital allowances can be a complex area, subject to numerous rules and rates, and one we would be very happy to help you with when completing your accounts.
The likelihood is that you use your car from time to time to travel to meetings, to pick up equipment or materials or for any number of other business related reasons. Remember that if you travel to your office or a specific place of work, those journeys cannot be included in your business mileage. It is important that you log all of your mileage, separating business from personal journeys. You can then claim the Government Approved Mileage Rate of 45p for every mile up to 10,000 and 25p for every mile thereafter.
There are also several other costs you can claim as long as your trip was purely for business purposes. These include:
- Public transport costs
- Parking fees
- Food and drink (HMRC states that these costs must be ‘reasonable’ but don’t define what that is. Be sensible and do not dine at Michelin starred restaurants and order vintage wines!).
- Hotel accommodation
- Congestion charges and tolls
If you have purchased or leased cars or vans through your business, you can claim a number of expenses specific to the running of those vehicles. Motor insurance, road fund tax, breakdown cover, tyres, servicing and repairs are all examples of specific expenses against your company vehicles that you can claim for. Remember though, that if you use a car purchased through your company for personal use or you provide a company car to another employee, you or your employee will be liable to benefit-in-kind taxation for having a company car. You will also be liable for national insurance contributions as an employer.
Most companies will at some point use the services of an accountant (or bookkeeper), a lawyer or another specialist consultant. With the exception of using an accountant to assist in a HMRC enquiry, you can claim all of these expenses against your tax.
Many businesses have to hold multiple insurance policies in the running of their operations. Whether it be buildings and contents insurance for your office, professional indemnity, public liability or insurance for your tools, any insurance costs can be offset to reduce your tax bill.
If you pay yourself or any employees a salary from your company, these costs are an allowable expense, as indeed are any National Insurance Contributions (NICs).
Premises and Office Costs
If your company runs out of an office, shop, warehouse or factory, you will regularly incur costs that are tax deductible. These include rent, phone bills, stationery, utility bills and so on. If you pay for a hot desk membership, which is the trend these days, then you can claim for this cost against your business.
Advertising and Marketing Costs
Marketing your business is essential to maintaining and growing your brand awareness and customer base. The good news is that these costs, being completely incurred by your business, are allowable against tax. This includes networking events and networking group memberships.
Workwear, Protective Clothing and Uniforms
If you or your staff have any need to wear specific clothing or protective items in carrying out your company’s work, these costs are all tax deductible.
Donations to Charity
Everybody wants to feel that they are giving back as well as making money for their business. So take the opportunity to choose a charity or two for the year that you wish to support and any contributions you make can be deducted as long as you are in profit. You cannot claim for charity donations if they result in your business making a loss.
Hopefully you will suffer little in the way of bad debt in your business i.e. debt that is unsettled for at least six months. However, if you do, you can claim it as a deductible expense. Bear in mind that if some or all of that debt is paid at a later date, you must declare the income in your accounts.
If your company benefits from being part of a professional body such as The Law Society or the Royal Institute of British Architects listed as an approved professional organisation by HMRC, those membership fees can be offset against your profits. Please note that HMRC expects membership to be relevant to your business so signing up to the gym will not be allowed!
What other expenses are there?
Depending on your business there might be other tax deductibles which is why the services of an accountant is vitally important, so you do not miss out!
Our blog about your company Christmas Party is another good example of where a lot of confusion exists!
The most important thing is to meet with your accountant and take their advice to ensure you are maximising those tax-saving opportunities. We are always happy to help.