Which Expenses Are Claimable?

4 years, 7 months ago by Oliver Atkinson

While it is important to make sure you claim all allowable expenses, you must also be aware of some items that are not allowable. The HMRC rule to bear in mind is that expenses should be wholly, exclusively and necessarily incurred for business purposes to claim tax relief. However, it is worth remembering that non-allowable expenses can still be paid for through your limited company but will be disallowed when calculating your Corporation Tax.

Following are the common expenses that most businesses incur:

Computer equipment

The cost of buying a computer, laptop or tablet used in the business is a claimable expense. You can claim an annual investment allowance of 100% on the actual cost of the asset. Depending on its nature and life span, computer software can either be capitalised or expensed.

Office furniture and machinery

The cost of office furniture such as desks, chairs and filing cabinets along with machinery used in your business are allowable expenses. They are treated in the same way as computer equipment with annual investment allowances available.

Leasing of equipment

If you choose to lease equipment used in the business then you can claim the cost of leasing the equipment as you incur the expenditure.

Research and development

If you do work on innovative projects in science and technology then you can claim 130% enhanced allowance on R&D expenditure in the form of tax credits or a tax rebate. This is a complicated area but with potentially huge tax savings so please get in touch if you feel this applies to your business.

Franchise fees

Some of the initial cost of a franchise fee could be an allowable expense in the first year with the remainder treated as an asset. The ongoing franchise fees will be allowable for tax purposes in the period they are charged.

Company formation costs

Company formation costs and any cost spent on advice received regarding forming the company are not an allowable expense for tax purposes.

Companies house fees

Companies house charges fee for filing certain forms with them and these are allowable although some accountants will include this expense in their fees.

Accountancy fees

The business element of accounting fees are allowable but not any charge for your personal tax return unless an adjustment is made in your director’s loan account.

Advertising, marketing and PR

Advertising your business can be a one-off or ongoing expense and is an allowable expense. This could include networking, social media or Google ad words.

Wages and director's remuneration

The cost of employing workers is an allowable expense for the business as well as the employer's national insurance contributions on wages of more than £157 per week per employee. Employers can claim an employer’s allowance of £3,000 per year although not if they only have one director employee. Directors should pay themselves remuneration to utilise their personal allowances and should also consider paying their partner a salary if they have some personal allowance available and there is work available in the company that is suitable for him or her to do.

Pension contributions

Every employer must now contribute a minimum of 2% from April 2018 (rising to 3% from April 2019) to the pensions of certain staff and this would be an allowable expense.

Telephone, mobile and broadband

When the contract is in your company's name and used solely for business the entire bill is an allowable expense. If you use your personal home telephone, broadband or mobile phone for business then only the business proportion is allowable.

Hotels and accommodation

If you have to stay away in a hotel or rent accommodation during a business trip then it is a claimable expense for the company but only if the costs are reasonable and justifiable. If you are away for business and pleasure, the pleasure part must be incidental for it to be allowable and if not, then the whole expense is not allowable. There is also a flat rate allowance available to cover food and accommodation, although you would generally be better off keeping the actual receipts and claiming the full cost.

Mileage

If you or your employees use their own car for business journeys (travel from home to work does not constitute as a business journey), it is possible to claim a mileage allowance of 45p per mile for the first 10,000 miles and 25p per mile thereafter. You can also claim an additional 5p per mile for each passenger on the same business trip. Claiming mileage allowance is generally more tax efficient than buying a car through the company, as a company car can attract fuel rate charges and benefit in kind issues.

Motorbikes and cycle bikes

This is similar to using your own car for business journeys with the mileage allowance set at 24p per mile for motorbikes and 20p per mile for bicycles.

Other travel expenses

If you have incurred other travel expenses such as train, bus, taxi, car hire and parking for travel to visit clients, your bank manager or accountant then it is an allowable cost for the company. Parking penalties received by employees whilst working are an allowable expense for the company but not for sole traders.

Subsistence

HMRC have various subsistence flat rates available depending on the time spent away from home and the circumstances of the trip. However, you are generally better off keeping the receipts and claiming the actual cost incurred of subsistence on business trips.

Use of home as office

If you have an office or storage area at home you can claim a flat rate based on the number of hours worked from home or we can work out a reasonable amount based on actual bills. This would be based on apportioning expenses such as mortgage interest/rent, electricity, water, gas and council tax over the time they were being used by the business. If you claim a proportion of your home is used permanently as an office you will not be eligible for Private Residence Relief which could generate a capital gains tax liability. This can be avoided if you only use the room as an office for some of the time.

Office stationery and postage

You can claim expenses for office stationery, postage, couriers, photocopying, printing, printer ink and cartridges.

Entertainment and gifts

You can claim the cost of entertaining clients from your company but you will not be able to get tax relief. This may seem pointless but can be useful if you are a higher rate tax payer. However, you can spend £150 per person for staff parties during the year (this can include their partners and is £150 per head). If you spend more than £150 per person then the whole amount is a disallowable expense. Gifts up to £50 per employee are an allowable expense but gifts to customers or suppliers are not allowable.

Business gifts

Generally, gifts such as alcohol and tobacco are not allowable but if the gift advertises your business, costs less than £50 and is not a part of series of gifts to the same person in the year then it is an allowable expense for the company.

Training and development

Training and development of an employee is good motivation for the employee and can result in a good return for the company. Only enhancing and maintaining your already acquired skills for your business is allowable while gaining new skills is not an allowable expense.

Bank charges and loan interest

Bank fees, overdraft arrangement fees and credit card charges along with interest on loans in the company’s name are allowable expenses for the company. However, the repayment of loans and overdrafts are not a tax-deductible expense.

Professional subscriptions

Subscriptions for professional membership related to your business along with any continuing professional development expenses are allowable expenses for the company.

Legal and professional fees

Legal fees incurred in relation to the trading activities of your business are allowable but if the legal fees were incurred in relation to non-trading activities they are not an allowable expense. If the fees relate to the acquisition of a capital asset such as property, the cost can be capitalised along with the asset. Professional fees relating to business activities are an allowable expense for the company.

Repairs and renewals

General repairs and renewals to an asset are allowable but if the repairs results in major improvements, replacement or alteration of an asset then they might not be
allowable for tax purposes and would need to be capitalised.

Reference books and journals

Reference books and journals used in your trade or training can be paid by your company and claimed.

Eyesight tests

The cost of regular eye tests and any lenses prescribed for display screen work only are an allowable expense while general prescription lenses are normally not allowed.

Clothing

Clothing that you can only wear at work such as uniforms and protective clothing are allowable while everyday clothing such as suits is not allowable.

Insurances

Insurances such as professional indemnity, public liability and building insurance for your company are allowable. You can also claim for some life insurance such as key man insurance and relevant life insurance policies