Your Ultimate Guide to Claiming Small Business Expenses

Small Business Advice 29 September 2017

What you can claim back as part of your business expenses

No one said running a business would be easy. Sometimes it feels like you’re spinning plates – dealing with loads of challenges all at once. Fortunately, there’s one significant relief for business owners; they can claim back money for the tax portion of their business expenses.

From staplers to salaries, the list of things you can reclaim seem long, and the details are sometimes shrouded in mystery. Our Ultimate Guide to Business Expenses will give you the what’s what of UK tax relief to help you make the best choices.

What’s tax relief?

When you spend money on certain things for your business a percentage of the costs can be deducted from your company’s profits. This can result in having less tax to pay, helping you save money and grow your business.

To do this, you must keep company records of all your expenses. This is where an accountant might come in handy, so check out our previous post on how to find the best accountant for your small business. Be sure to save every receipt no matter how small the purchase. Company records must be kept for six years or you might face a fine of £3,000 from HMRC.

If your records become lost, stolen or destroyed, you should:

Do your best to recreate them
Tell your Corporation Tax office straight away
Include this information in your Company Tax Return

What types of business expenses can I claim?

There are many different types of business expenses. While there is no official list on the .gov website, perhaps think of it this way; if an expense is incurred as part of your duty, it’s likely it can be offset against tax. Just make sure your expenses aren’t specifically disallowed by HMRC – we mention some of them below.

A dual purpose claim is unlikely to be accepted. This is something used for both business and personal use like clothes. You can always speak to an accountant if you’re unsure what qualifies as a business expense.

A few items you can reclaim as business expenses:

  • Accountancy fees
  • Charitable donations
  • Clothing expenses
  • Marketing & entertainment packages
  • Office, property & equipment
  • Home office expenses
  • Staff expenses
  • Subscriptions
  • Travel expenses

Accountancy fees

If your accountant is working on your company accounts and not your own personal account, you can claim their fees as tax deductible. In general, the same applies for other professionals like solicitors.

Charitable donations

If you pay tax at a higher rate and donate to a registered charity, you can claim back the higher rate you’ve paid. For example, if you donate £500 to Oxfam and you’re a 40% taxpayer, you can offset £125 against tax.

Clothing expenses

If you pay for uniforms and protective clothing (like work boots or safety helmets), these can be deducted from tax too. You can even reclaim on cleaning and repairing these items. However, a new suit for boardroom meetings is a no-go.

Marketing & entertainment packages

Perhaps surprisingly, adverts posted in newspapers or directories can also be expensed. The same goes for bulk mail advertising, free samples and website costs. But you can’t claim for entertaining clients, suppliers or hospitality, even if the whole event is spent discussing work.

Office, property & equipment

Normally an item used for less than 2 years can be reclaimed. This might include stationary, rent, rates and insurance costs. Computer equipment and software can also be deducted against tax. Some relief can be claimed for equipping or furnishing your office (like chairs or a bookcase), however, this may appear to hold dual purpose.

Lots of small business owners work from home. That’s why HMRC allows a flat £4 per week fixed expense without the need for receipts. Instead you can allocate a fair proportion of your home running costs (utility bills, mortgage, rent and council tax) to your business.

You might want to calculate the following expenses too:

The total running costs of your property
The percentage of property used for business
How much of the utility bills are used for business

Remember, you can always speak to an accountant if you need help.

Staff expenses

You can reclaim on a number of staff expenses like employee and staff salaries, bonuses, pensions, benefits, agency fees, subcontractors, and employer’s National Insurance. However, you can’t claim for carers or domestic help (like nannies).

Subscriptions

If you like to stay informed about your industry, then you can reclaim costs for trade and professional journals. Trade body and professional organisation membership can also be expensed. However, payments made to political parties or gym membership fees won’t be accepted.

Travel expenses

Travelling from your home to a permanent workplace doesn’t count as business travel. The company can only pay you back if the journey counts as a ‘business journey’. Therefore, the journey must fulfil the following:

The journey is between business appointments
The journey is to a temporary workplace (somewhere you haven’t travelled to for more than 24 months)

You can claim mileage allowance when using your own personal vehicle for business travel – check the current rates here. These rates cover costs associated with fuel and wear and tear of the vehicle.

How to reclaim business expenses

This depends on whether you’re set up as a limited company or a sole trader. Either way, you need to tell HMRC about your business expenses – this is when accurate company records will stand you in good stead. All your expenses for the tax year need to be added up – this will include your receipts, invoices and papers. You don’t need to send in proof of expenses when you submit your annual tax return. However, you should be ready to show your records if asked by HMRC.

Limited company

As a company director, you can reimburse your expenses at any time. If you pay for the expense yourself, then you complete a bank transfer from your company account to your own personal account. If the expense cost is taken directly from the company bank account then each amount must be recorded.

Your employees might want to claim expenses too. You might want to consider guidelines and policies so your staff know how much they can spend and in which situation. You might want to have a company expense form, which can be collected and filed at the end of each month.

Sole trader

As a sole trader, you need to file a Self Assessment tax return in order to reclaim expenses. You can do this at the beginning of the year – the deadline is typically January 31. However, you can usually file any time from the previous April.

Missing the deadline can lead to a penalty. If your return is up to 3 months late, you could face a fine of £100. You’ll have to pay more if it’s even later.

Filing your accounts

You might fancy filing your own accounts. If that’s the case then accounting software can save you time and money. A subscription can cost as little as £19 per month. There are plenty of online platforms to choose from (like FreeAgent, Sage One and Sage 50) that can prepare your accounts, invoices and reports.

However, if you want a more personal service, then hiring an accountant might be a better option. Even if you don’t meet them face-to-face, an accountant can look at your unique situation and work with you to legally minimise your tax liability to help save you money.

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