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.
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)
Insurance, rent, rates and power
Rent costs for the business premises
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
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
Visas for business travel
Advertising and marketing:
Advertising in newspapers
Paid listings in directories
Other office running costs
Some small office equipment
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:
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
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.
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.