What business expenses can I claim through my small business?
The 2016 deadline for submitting a company’s annual tax return is approaching. Understanding which business expenses can and can’t be claimed can be a daunting task, especially for owners of small businesses who do not have a dedicated accounting department. Here’s a quick guide to the tax allowable expenses that you can claim back as a small business owner.
Tax Deductible Expenses for Small Businesses
HM Revenue & Customs is the ultimate authority on this subject matter, and although the allowances may vary from case to case, HMRC has stated that the following are qualifying expenditures as long as they exist for business purposes wholly, exclusively, and necessarily:
Christmas parties and other entertainment events are allowable expenses as long as all employees are invited and the expenditure per employee does not exceed £150.
Bank charges and interest
Some bank charges incurred by small businesses are considered “incidental costs when obtaining finance”, and these are fully deductible (e.g. business loans, fees associated with operating business bank accounts, and the cost of hiring an expert to negotiate business lending contracts).
Office or business premise rental fees are legitimate allowable expenses as long as the premises are solely used for business purposes. This also means that employers who provide on or off-site business accommodation to their staff can claim this expense back. This is a common practice in industries like hospitality, construction, and healthcare. In addition to the rental fee, business owners can include in their claims the following: utility charges, the cost of furnishing the premises, expenses incurred through maintenance or repair jobs, and the cost of employing staff for upkeep purposes. Business accommodation can be claimed back once you find out its cost and any additional charges. For detailed information on how to calculate this, follow the instructions in this HMRC guide.
According to HMRC, business owners can claim the cost of accommodation, meals, and travel (including public and private transport) when away on a business trip. If using a private vehicle or company car, mileage expenses can be claimed back as per the current mileage allowances. Congestion charges, taxi fares, parking fees, and motorway tolls are also deductible. In addition, owners of SMEs can claim incidental expenses (such as laundry, newspapers, and phone calls) for a maximum value of £5/night (£10 if overseas). Moreover, business owners who work from a location other than their regular office for up to 24 months can claim their travel expenses in full.
Admittedly, this is one of the most complex aspects of company taxation. Generally speaking, business owners can claim back the cost of vehicles used for business purposes and expenses incurred when investing in R&D, patents, and necessary equipment or machinery. Under the Annual Investment Allowance, equipment and machinery costs are allowable up to a maximum of £200,000. Additionally, a 100% tax relief is available on the costs of renovating office or business premises in designated Assisted Areas.
The main rule with regards to clothing is whether the items purchased can be used for dual purposes (e.g. a business suit would not be an allowable expense, as it can be worn for private use too). Uniforms and PPE are tax deductible.
Fees for Professional Services
Business accounting, bookkeeping, and legal fees can be claimed back, as long as these services are not engaged as a result of fraud or negligence.
Gifts & Donations
Branded gifts (exclusive of vouchers, alcohol, tobacco, or food) with a maximum value of £50 are tax deductible. Business owners who invest in approved social enterprises (including designated charities, community benefit societies, and community interest companies) are eligible for Social Investment Tax Relief which provides 30% income tax relief on the original investment.
Any insurance policy exclusively taken out for business purposes is tax deductible. This includes building, contents, motor vehicle, and equipment insurance, as well as employers’ liability, business disruption, and professional indemnity insurance where applicable.
Payroll expenses (including National Insurance contributions) are considered an allowable expenditure as long as they are within the NI limits. This applies to staff, company directors, contractors, and sub-contractors and includes regular wages, benefits and bonuses where applicable. In the majority of cases, pension contributions are allowable expenses as long as they are kept within the annual threshold.
Membership fees and the cost of subscribing to trade journals or magazines are tax deductible as long as the professional body is approved by HMRC.
Business stationery and computer consumables (such as business cards and printing / photocopying supplies) are tax allowable expenses.
The cost of landlines, mobile devices, and Internet connection is tax deductible if these items are exclusively used for business purposes. In the case of telephones, the phone line will have to be registered to the company, and no employee can have more than one business phone. The cost of business software and of running a website (e.g. domain and web hosting costs) is also considered an allowable expense.
Owners of small businesses who attend essential work-related training courses (such as seminars or CPD courses) can claim back registration fees and travel expenses where applicable. This document clarifies what constitutes essential training.
This post was contributed by London Office Space, a brokerage that helps companies find serviced, managed and conventional space in London.