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Beyond the balance sheet

Practical & useful tips about allowable business expenses

Ercan Demiralay 03/8/2018 3 minute read

Ercan Demiralay provides a useful list and explanation of the tax allowable business expenses.

Once your start-up is running then the likelihood is you'll be incurring expenses over which you have ultimate control and hence classified as if you were self employed. As the months roll and transactions take place, a common question we come across is, "what expenses can I claim in respect of my business?" The simple answer is most things that relate to your business.

A more complex reply as to what constitutes allowable business expenses is those that are identified as "wholly and exclusively" for the purposes of the organisation. That means they have to be identifiable as part of the running and performance of the business or, attracting more work in the form of new business.

How to get your financial records, expenses and taxes in order

What are revenue expenses?

There are different categories of expenses and for the purposes of this blog post, we are referring to revenue expenses. These tend to be small items that last for a short period of time, often being used immediately and for general operational matters. Examples include rent, insurance, heating and repairs and maintenance.

Expenditure on assets that are likely to have a lasting benefit (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.  

The revenue expenses that are allowable for tax purposes

The below list is a useful but not exhaustive guide to the revenue expenses HMRC allow you to claim tax relief on:

Wages, salaries and related staff costs

  • Salaries, bonuses, pensions, benefits for employees
  • Employers' National Insurance Contributions (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 car 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 overnight business trips
  • Inoculations
  • Visas for business travel

Advertising and marketing:

  • Advertising in newspapers
  • Paid listings 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

Expenses 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
  • 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

Pre-trade expenses

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. This is 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 addition to your normal expenses arising from doing business.

Of note, the general pre-trade expenses rule of thumb is they apply if you would consider such expenses qualifying were you actually trading. If they're likely to be allowable when doing business then they'll probably work for tax relief purposes prior to trading.

Start-up tax reliefs and expenses free guide, Wellers.

The content of this post is up to date and relevant as at 03/08/2018.

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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