Baffled by business expenses?
Part One: Allowable expenses
Maintaining a record of costs is essential to keeping track of the health of your business’ finances, but business expenses can be a total minefield.
From stationery and IT equipment to staff uniforms and client entertainment, you’re going to generate all sorts of costs in the day-to-day running of your business. But how do you know which costs you’re entitled to claim for when you submit your tax return?
HMRC call the costs you can claim “allowable costs”. These are the costs that are wholly and exclusively for the purpose of running the business. Such expenses tax deductible, meaning they reduce the amount of your taxable profit and hence you tax bill. Most businesses will have some or all of the following costs.
Most basic every day expenses required to run your business are classed as allowable. Paper and printer cartridges, uniforms, business phone bills and the rental of office space are all considered allowable expenses. Provide they directly relate to the business, such as coverage for the business premises or employer liability, then insurance costs are also claimable.
You can claim for travel expenses but only if they are genuine business trips. This does not include your daily commute to and from work, which is always considered personal.
If you have a vehicle used exclusively for the business, then all the costs associated with that, such as fuel and repairs, are claimable. If you use a non-business vehicle for business purposes, the you can claim a specific amount per mile as a tax-deductible expense. The claimable amount is 45p per mile for the first 10,000 miles and 25p for each subsequent mile above that. Even those who chose to use a bicycle for their business trips can claim 20p per mile.
Costs accrued through the marketing or advertising of your business are also allowable. For example, paying someone to build you a new website or hire the services of a PR or advertising agency are considered tax deductible.
If you host regular company events, such as a Christmas party or awards ceremony for staff then the cost of these events is also covered as long as the total doesn’t exceed £150 per person. However, even though entertainment is a big part of the client accruement and retention process, costs spent wining and dining clients are not deductible for tax.
If you have a business bank account, credit card or loan, then all the interest and bank charges associated with them are allowable. If you’re having trouble working out your finances for yourself then the cost of hiring an accountant to assist you is also fully deductible.