One of the most common questions we are asked by a business owner is ‘what can I claim?’. We summarise the main points in this blog post.
All businesses pay tax on their profits (whether that be Sole Traders, Limited Company, Partnership etc.). When we say claim (Or allowable expenses, deductions etc.), we are referring to business expenses that can be offset against your income.
So for anyone that works for themselves, the more you claim, the lower your tax is going to be. In other words, the higher your expenses the less money you have to pay to HMRC.
The fundamental rule is that you can only claim a deduction if the expense incurred is ‘wholly and exclusively’ for the purpose of the trade.
In broad terms, this means that if you’re only buying something because your business requires you to pay for it, you can claim the cost.
Here is a list of some of the most common deductible expenses;
I know what you’re thinking, “this is obvious why are they including this?”. You’d be very surprised by the amount of clients we’ve had that have asked this question. All of the stock you purchase, raw materials and any direct costs that arise from the production of goods are allowable expenses.
The most important expense any business can have, ever – and they are of course claimable.
You can only claim tax relief on training costs if it updates expertise that you already have, or relates to/improves your current trade. For example, if you’re an electrician you can’t train to become a brain surgeon and then claim that cost!
You can claim subscriptions to any professional bodies you’re part of as an expense providing they relate to your business. Even though I’m talking about professional bodies here, you still can’t claim your gym membership…
You can claim any insurance policy for your business e.g. public liability insurance, employers liability etc.
All advertising & marketing expenses incurred can be claimed that promote the business. This includes networking fees.
Any stationery you buy for use in your business can be claimed as an expense.
You can get tax relief on charitable donations you make – but only if it is a local charity (national charities are not deductible). This is because it needs to have some benefit to the business – such as increased exposure in the local area.
Computer software you purchase for the business can be claimed. So, if you pay for Microsoft Office, xero etc. you can put this through.
If your job requires tools for business purposes you are allowed to claim them. Included with this is also costs associated with maintaining your tools & equipment.
If this is in the company name you can claim it all (Only one phone per person though!), if it’s a personal phone you can only claim for the calls used for the business. If, however, you don’t live in 2002 anymore and pay for your phone on contract you unfortunately won’t be able to apportion any of it to the business. This is because HMRC deems that you’ll be paying for it anyway.
Ordinarily clothing isn’t allowable. That said, if it’s branded with your logo or is protective clothing i.e. steel toe cap boots, high vis jackets or an apron, it can be claimed.
If the purpose of your travel is for business purposes and can clearly be separated into business & personal expenditure then this can be claimed. This includes flights, accommodation, train tickets & parking costs. If you’re unlucky enough to get a parking fine or speeding ticket though this can’t be claimed.
If you use your personal car for work journeys then you can claim mileage. Claiming mileage covers the costs of any wear and tear to the vehicle & the cost of fuel. To claim mileage, the journey must be solely for business purposes and can’t be going to and from a regular place of work. The claimable amount is as follows.
First 10,000 miles 45p per mile.
Additional miles 25p per mile
Bicycles 20p per mile.
Motorcycles 24p per mile.
We recommend using an app, like Tripcatcher (which links to Xero) to track and claim all mileage.
If you work in an office any costs associated with this can be claimed. These include rent, water, electric, gas and business rates.
You’ve probably heard some of the most wonderful stories of extraordinary things others have claimed against their profit and how it’s perfectly fine to do so. Most likely this isn’t the case, but here are some of the myths & potential grey areas surrounding some of the more ‘iffy’ expenditure that comes up.
What can become problematic for business owners to understand is that there are some items of expenditure they will incur, which, in their view, reasonably is for the purpose of the business, but in the eyes of HMRC is not claimable at all.
This falls under the Duality of Purpose rules, and generally, if an item of expenditure also bears a personal element, and the split can’t be clearly defined between business and pleasure, it won’t be claimable. Just like our Mobile Phone example above.
Some other examples would be an accountant who has purchased a suit. Quite reasonably, the accountant might argue he has only purchased that suit to wear to work. However, as the suit does not bear any advertisement, or protective element, it is not claimable. And this is because in HMRC’s eyes, the accountant would need to be properly clad in anycase. These rules are similar for meals (see below). You still have to eat.
Similar to this also, is travelling to your usual place of work, which is not claimable. In the business owners eyes, this can border the ridiculous, because you can’t work if you’re not there! But in HMRC’s views, it’s the business owners choice where they live.
We always recommend clients who suffer costs which have a dual purpose (personal element) to run this past us before claiming the cost. Chances are it’ll need to be looked at specifically, and in most cases, can’t be claimed.
This is the question we get asked the most. “I heard from John down the pub that I can claim £6 a day for a meal allowance, can I do this?” The short answer to this is no. The longer answer is ‘that depends’? Let me clarify that a little bit for you.
Everyone needs food & drink to survive which immediately makes any food that you buy not ‘wholly and exclusive’ for the purpose of trade. There are certain situations where you can claim a ‘reasonable’ amount as a travel expense. Either it’s part of your business to travel from place to place for example a travelling musician – or you’re making an occasional business journey outside of your normal pattern, this can then potentially be claimed.
However, the bottom line is, there is no ‘meal allowance’ and unless you’re going somewhere out of the ordinary for business purposes, it can’t be claimed.
Entertaining clients – unfortunately you can’t gain any tax relief on this. Entertaining employees on the other hand is thankfully allowed. This can be an annual event, most commonly either a Christmas Party or a Summer BBQ, open to all staff & cost less than £150 per head.
If you do a lot of work from home you can claim a proportion of the variable expenses incurred E.g. Gas, Electric & Water. Fixed costs like insurance & council tax cannot be claimed because these will be paid regardless of you working at home or not. The amount you can claim is based on the amount of space you use for the business and the time spent working from home.
In our experience, it’s difficult and time consuming to calculate this accurately. Therefore, we recommend clients claim the use of home as office allowance as per HMRC guidance.
Unfortunately you cannot claim either of these because it’s not ‘wholly and exclusively’ for the purpose of the trade. This is unfortunate though especially for people with physically demanding jobs. Please remember that not all claims have happy endings.
This is a tricky one. Generally, if you use a computer regularly for work, you can the cost of an eye test.
However, the rules around glasses are much more strict. Unless you have a specific pair of glasses for work, which remain at work (and you are required to be able to provide proof of this), and a separate pair for personal use, they can’t be claimed.
Ask us! Our clients all receive unlimited advice and support, for queries just like this.
Or, you could call the nice folk at HMRC and ask.
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