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!
Allowable business expenses are purchased products or services that help keep a business running. Examples include stationery, phone bills, and travel costs to name a few. They are deducted from income when calculating taxable profit which means you don't pay tax on these items.
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:
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.
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:
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.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.
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