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Beyond the balance sheet

HMRC Allowable business expenses you can claim in the UK

Ercan Demiralay 18/2/2020 5 minute read

Ercan Demiralay FCCA talks through expenses and provides a helpful list and explanation of allowable business expenses in the UK.

As long as you have proof of purchase it’s OK to claim all business expenses, right?

Well, not quite.

But whether you’re a sole trader on the move or running a SME business from an office, there are a multitude of expenses that are allowable. If you’re one of the estimated 5.8 million UK small business owners wondering what you can claim, keep reading!

Once your start-up is running it’s safe to say that you’ll be incurring business expenses, but it can be tricky to know which self-employed expenditures actually qualify. It’s important to understand which costs are deductible, so hang on to your receipts because you might be surprised to find out that most things related to your business are permitted.

Let's face it no one wants to miss an opportunity to save money!

How to track business expenses in your start-up? Download our FREE guide >

How business expenses work

There are different categories of expenses, revenue expenses are some of the most common business costs in an accounting period. These tend to be purchases that last for a short period of time, often being used immediately and for general operational matters.

Expenditure on assets that are likely to have a lasting benefits (of say a year or more) such as IT or office furniture are referred to as capital expenses. Capital expenditure qualifies for another form of tax relief known as capital allowances.

Other examples of revenue business expenses include:

  • Rent
  • Insurance
  • Heating
  • Repairs and maintenance

What exactly classifies as HMRC allowable expenses?

We’ve included a useful list below as a guide to the revenue expenses HMRC allow you to claim  tax relief on. Remember, this is not an extensive list and if you’re unsure if a business expense is allowable then you should check with your accountant.

  • Wages, salaries and related staff costs

    • Salaries, bonuses, pensions, benefits for employees
    • Employer’s National Insurance Contribution (NICs)
    • Agency fees
  • Insurance, rent, rates and power

    • Rent costs for the business premises
    • Business rates
    • Water rates
    • Light
    • Heat
    • Power
    • Property insurance
    • Security
  • Maintenance and repairs to equipment and premises

    • Repairs and maintenance of business equipment and property – buying, improving or altering a property is not included
  • Car, van and travel

    • Car and van insurance if the vehicle is an asset of the business
    • Repairs, servicing and fuel
    • Hire charges
    • Vehicle license fees
    • AA or RAC membership
    • Train, bus, air and taxi fares (excluding travel to and from home to a permanent place of work)
    • Hotel accommodation when on business trips
    • Meals for over night business trips
    • Inoculations
    • Visas for business travel
  • Advertising and marketing

    • Advertising in newspapers
    • Paid listing in directories
    • Website costs
    • Mailshots
  • Other office running costs

    • Phone
    • Fax
    • Mobile phone
    • Internet connectivity
    • Email
    • Stationary
    • Printing
    • Postage
    • IT software
    • Some small office equipment
  • Professional fees

    • Fees for solicitors, accountants, surveyors, architects and other professionals
    • Professional indemnity insurance premiums
  • Banking and other financial charges

    • Bank, overdraft and credit card fees
    • Hire purchase interest and leasing payments
    • Alternative finance payments

Which expenses are excluded from tax relief?

There are some revenue expenses which, whilst genuinely connected to the business, aren’t applicable when it comes to tax relief. Often these are referred to as disallowable expenses or even expenses to be added back.

As a rule any expense that is partly covered as a business expense but also personal won’t qualify. Anything with a personal aspect simply isn’t allowable. Examples include:

  • Business entertainment
  • The repayment of loans taken out personally to help run the business
  • The depreciation of assets
  • Drawings including payments for tax and National Insurance Contributions (NIC)
  • Fines and costs resulting from breaking the law such as car parking fines, if incurred by proprietors or directors
  • Charitable donations, including subscriptions, with the exception of small charities
  • Political donations

Can I claim  pre-trade expenses for my start-up?

In the early days you’ll likely have to spend money on various things in order to get to a point of being able to trade. These are known as pre-trade expenses and can include privately owned items that are now in use for business purposes.

Again, these can be categorised under revenue expenses or capital expenditure. The general rule is if you took on the expenses within 7 years of commencing business trading then they can be claimed for tax relief in additional to your normal expenses arising from doing business.

The rule of thumb is they apply if you would consider such expenses qualifying were you actually trading.

When it comes to expenses, making the purchases might be the easiest part! Consequently, the more products and services required for a business the more paperwork and account management required. Knowing what is allowable and keeping track of the details can be made easier with the right accounting software and the assistance of a knowledgeable business advisor.

It's important to remember that putting the right tools in place and managing your expenses properly will help to build a profitable business when starting from scratch.

 

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