As an accountant, I often get asked “is such-and-such an expense I can claim against my tax return?”
Sometimes the answer is simple. Sometimes it really is not.
But as you have already guessed, I am in the business of educating people on their finances. So, it’s time we published a blog post on some of the things you can claim as an expense and some of the things you can’t BUT can still go through your business. (We’ll cover why that is important in another blog post).
Get a pen and paper at the ready, save as a PDF or if all else fails print a copy out (being mindful of the environment!). Here goes…
DEFINITION OF AN ALLOWABLE EXPENSE
Allowable expenses are essential costs that keep your business running. They're tax deductible, which means you don't pay tax on the money you've spent. However, only certain things can be put down as an expense.
THINGS YOU CAN CLAIM AS AN ALLOWABLE EXPENSE
Advertising & Marketing
Advertising & marketing costs can be claimed as allowable expenses in your business. BUT watch out: some costs you may consider to be marketing like taking your client out to lunch are actually classed as "Entertaining" by HMRC.
Bank Interest & Overdraft Charges
If you have a dedicated business bank account for your business, the interest and bank fees you get charged can be included in your allowable expenses. (N.B If you are using the cash based accounting scheme, then you can claim up to a max of £500 a year in interest in charges.)
If you are using a personal bank account for your business, the amount of bank fees and interest you can include in your allowable expenses will depend on how much you use that account for business. If the business use of the account is pretty small, then you shouldn't include any fees as allowable expenses. But if you use it mainly for business, then it is worth including some of these costs and discussing it with a visiting HMRC inspector if needs be.
Home Broadband
Working from home but don't have a separate contract for your business broadband? You are able to include the full cost of all the broadband you use for your biz (use an itemised bill!) and a percentage of the line rental. If you pay a fixed fee for your broadband (most of us do!) include the percentage of what you use for your biz.
(To calculate the percentage, work out how much you use the broadband for your business and how much is personal. IF the personal usage is "not significant", you can claim the full cost.)
Home Council Tax
Did you know, if you work from home, you are able to include a proportion of your council tax cost in your allowable expenses? Yup. You're welcome.
Mortgage (Home)
You're working from home, and you pay a mortgage on that home. You may be able to include a proportion of the interest you pay on it but NOT the capital payment.
Rent (Home)
If you rent your property, you may be able to include a proportion of your rent in your allowable expenses.
If you rent a dedicated office space for your business, then you can include the full cost.
THINGS YOU CANNOT CLAIM AS AN ALLOWABLE EXPENSE (aka DISALLOWABLE)
Entertaining Clients
But surely this is a vital part of building your business relationships? Yes it is, and it should be put through your business accounts as such. But the way HMRC see it? You could be meeting with a client in a boardroom rather than a restaurant – therefore it is not classed as a tax deductible expense.
Home/Office Food & Drink
No employees? You CAN'T claim the cost of food and drink you buy to eat whilst working from home or in your office.
Client Gifts
Ooof. This is a big one. This one is very conditional meaning the answer is not yes but also not no either. Confused? Here’s a little help.
I’ve added this into the “things you can’t claim section” as if it doesn’t follow all three of these requirements, it cannot be claimed as a tax deductible expense. Here are the requirements:
1. It is not food or drink
2. Costs less than £50 per recipient per year
3. Is prominently marked with your business' name.
Training and Personal Development
Got a business coach? Or a marketing mentor? Training to become one? If these are skills you already had, then you can include the costs of improving on those skills. If these skills are totally new to you, unfortunately, you aren't allowed to include them. So CPD (continuing professional development) could be included but a new avenue you haven’t trained in previously, couldn’t.
A word of caution: if you have a business coach that doubles as your life coach you are only able to claim tax relief for the business side of things.
That’s only a snippet of the minefield that is allowable expenses. However, that snippet may cover some of the questions you have been wondering but have never asked OR had a clear answer on.
As well it’s worth noting that in a lot of what was allowable, there’s a sneaky but incredibly important word that needs to be taken onboard: proportionate. This means you can’t necessarily claim for the entirety of the cost because you do not work in your business 24 hours per day, 7 days per week, 365 days a year. And as much as it feels like that sometimes (take that from the words of a true work-a-holic), it is not. We all have to sleep or take an hour out here and there. Work out just how many hours you spend working, how many rooms there are IN TOTAL (not just bedrooms) in your house and how this relates to how many hours there are in the week/month as well as how much your full bill costs for that week/month.
If you need the equation, ask me here.
There are so many more things that you can do to reduce that tax bill. Want to know more? Keep your eye out for our popular kit coming back on Jan 5th…
Until then, keep reading our blog – we’ve got some great good-to-know tips coming at you this week!
Happy Friday (just!) x