Business expenses guide
INTRODUCTION TO EXPENSES
Stating the obvious … running a business isn’t easy. There are many things on your to do list and each one of those things is the #1 priority, so it’s easy to appreciate that recording and claim- ing back expenses can be the last thing on your mind. It’s also hard to keep track of what business costs and expenses are eligible for tax relief, and ultimately the company can end up paying too much tax.
In this guide, Next Level Business’ Paul Layte gives the lowdown on common business costs and expenses, their eligibility for tax relief, and how best to record these moving forward. Use this document as a reference guide. For quick navigation, scroll to the bottom and download a PDF copy which allows you to click on the area of interest on the front sheet to be taken directly to the relevant information.
Throughout its daily existence, all companies will have business costs and expenses that help it to operate. These expenses are taken directly from the business account or from your personal account (to be reimbursed). But expenses and business costs can be recorded efficiently to ensure that your Corporation Tax amount is accurate, and you are not paying additional tax to what you should.
TAX DEDUCTIBLE EXPENSES
Before dividends are issued by your company, you are required to apply Corporation Tax on its profits. Tax deductible expenses that are incurred by the company minimise the profit that is liable for Corporation Tax. Therefore, more tax deductible expenses means lower taxable profit.
Understanding the eligibility of expenses to be deducted before tax is important to efficiently manage your companies finances.
Technology has simplified expense management and here at Next Level Business we are avid supporters of a cloud based method to make your life easier. Our main tool for expense recording is using Receipt Bank or Xero. Take a picture of your receipt / invoice, log the expense against pre-determined accounts, and reconcile within a digital accounting platform such as Xero.
IF YOU DON’T USE A DIGITAL ACCOUNTING PLATFORM, YOU CAN ALSO EXPORT YOUR EXPENSE REPORT TO A SPREADSHEET.
These apps recognise receipts after an initial run through and reconcile automatically in future instances. For convenience, these apps can be found together in the Launchpad.
OFFICE, PROPERTY & EQUIPMENT
Business Use Of Home
If your main place of work is your home, as the director of a Limited Company you are entitled to £4 per week cover without having to provide proof of calculation to HMRC. If your personal expense is greater than £4, you would need to be able to demonstrate to an inspector of HMRC how you came to this calculation.
The calculation to determine cost of working from home is to make a genuine and proportionate estimate to what is used for business purposes. For example, in a 4 room house, in which 1 is designated to your work, 25% of the total relevant expenses can be claimed.
Relevant expenses being gas, electricity, insurance. Mortgage payments and council tax payments cannot be claimed without paying extra tax. In order to qualify, a lease agreement between you and your company has to be arranged in order for the company to rent the office from you.
Computer Equipment & Electronics
For private & business use
If the company gives you computer equipment that you can use for business and also more than an “insignificant” amount of private use, the company will have to pay extra National Insurance as this is considered a taxable benefit.
Private equipment brought into a company
Computers, office chairs, etc. are tax deductible on its market value at the point of bringing it into the company, from your private ownership. If you continue to use this equipment privately, HMRC will consider this a taxable benefit.
Solely for business use
If the company gives you computer equipment that you use only for business purposes and no more than an “insignificant” amount of private use, the cost of the equipment is a tax deductible expense. HMRC do not consider this to be a taxable benefit.
Second-hand equipment brought into a company
Equipment purchased by the company is a tax deductible expense (as a capital asset) at the cost it bought it for. The equipment is new to the company, if not new in manufacture.
Internet & Phone
If you are using a home or mobile phone for both business and personal calls then you cannot claim for line rental due to dual usage.
Claims can be made for the business phone calls made on that line.
A second line can be set up in the company’s name for business purposes, and line rental claimed as an expense. Personal calls will be classed as a taxable benefit and you will be taxed accordingly.
The company can provide you with a mobile phone for work use. Any personal calls would not need to be recorded as benefits.
If you use your personal broadband account for business purposes, line rental cannot be claimed as an expense. A proportionate charge for business usage can be claimed.
If the broadband account is set up under the company, the full cost of the line rental and business use is a tax deductible expense.
I’ve personally cut down my expense management time by up to 90 minutes a week using cloud technology. In fact, we transfer all our clients on to the system and where we’re not managing it on behalf of our clients, advocate the use of it for all bookkeeping activities.
ACCOMMODATION, MEALS & TRAVEL
Accommodation whilst travelling
Accommodation whilst travelling on business related purposes can be claimed as an expense by the business, providing the expense is reasonable and not excessive.
If you are staying in hotel accommodation during a period at a temporary workplace, you can claim as an ex- pense, on the basis that it is somewhere you expect to be working for less than 40% of your time for the next 24 months.
Hotel accommodation cannot be claimed personally if it is located close to your permanent workplace. If it is, you’ll need to pay tax and National Insurance on the repayment as it is will be considered a taxable benefit.
Meals (Food & Drink)
At your home or other company offices
If you are the sole director and the company has no other employees, you wouldn’t be able to claim the cost of food and drink you buy to eat whilst at your usual workplace.
If the company has other employees it can provide basic food and drink (tea, coffee, biscuits).
The company can provide free meals at a canteen without having to pay extra tax and National Insurance, as long as it is available to all employees.
You can claim back the cost of food and drink when travelling for business. The company can also include this in its accounts as tax deductible.
Flight, Train, Bus, Car Hire
The company can reimburse expenses for business travel and claim these as tax deductible expenses.
The company cannot reimburse (without additional tax repercussions) for travel to the permanent workplace, and the same applies for temporary workplaces that are known to become permanent. Same rules as accommodation applies.
Mileage (Car / Van / Bicycle)
If you travel in your own vehicle for business purposes, the company can reimburse each business mile as per HMRC rates (up to 45p per mile). Click to see HMRC rates. Same rules apply as per accommodation.
SALARIES, PENSIONS & CHILDCARE
A salary paid to you as an employee or as the director of your company is regarded as an allowable expense, as are any National Insurance contributions.
Provided you fall outside of IR35 legislation (company—client employment relationship), and have no contract of employment between yourself as the director and your company, you may choose the level of your salary.
When the company makes pension contributions to its own pension scheme (e.g. contract with a pension provider) it can claim tax relief on the cost of these contributions in its accounts.
There is no tax relief cap to how much you can contribute to pensions through your company.
The company can provide childcare vouchers to employees of the business. The cost of the vouchers is based on a salary sacrifice and is therefore deducted from the employee’s salary before taxation.
If the employee falls within the ‘Basic’ tax rate, the company can provide up to £243 per month in childcare vouchers. ‘Higher’ rate earners, up to £124 per month. ‘Additional’ tax rate earners may receive £110 per month.
The childcare voucher scheme can allocate payment through:
- Direct agreement with a registered childcare provider. A letter between you and the provider confirming the amount must be present.
- Through an official voucher scheme.
A child/stepchild is eligible on the following conditions being met:
- Is between 0 & 15 (15th birthday)
- Is living with the employee
- The employee is providing maintenance cost for the child
HEALTH, WELLBEING & MEDICAL TREATMENT
Eyesight Test & Glasses
Eye tests are tax deductible for companies when provided for those employees using visual display equipment (monitors etc.).
If glasses or contact lenses are provided for employees in order to use monitors and other screens, these are also eligible for tax relief.
Medical & Dental
Medical and dental insurance is tax deductible if the company arrange and pay the provider directly for treatment or insurance, and the employee earns at a rate of less than £8,500 a year.
‘At a rate’ being the nominal earnings, plus benefits, at the full year equivalent if worked less than.
Work Only Insurance
Only treatment or insurance related to injuries or diseases that result from your employee’s work is exempt.
Return To Work Treatment
Exempt up to £500 for costs of an employee returning to work, providing they have been absent for at least 28 days.
Periodic Medical Checks / Health Screening
One check a year is tax deductible.
HMRC use the latest technology to track anomalies in expense claims and investigate. Be smart. If you think you’re going overboard with your claims, you probably are.
ENTERTAINMENT, EVENTS & GIFTS
Entertainment & Events
Unfortunately, the company can’t claim tax relief for entertaining clients. The company can still cover the costs but this will be added back to its profits before Corporation Tax is applied.
Entertaining employees is in some situations tax deductible prior to Corporation Tax, but be careful, it could also be a taxable benefit to employees on which they have to pay additional tax.
In order for an event to meet HMRC’s ‘qualifying’ criteria (not a taxable event on employees):
- It is an annual event (e.g. Christmas party)
- It is open to all employees
- It costs less than £150 per guest present
If one of these criteria is not met, the whole cost of the event becomes a taxable benefit.
Gifts to Employees
Gifts to employees could constitute a taxable benefit to employees and subject to an increase in tax for the employee.
HMRC has an A to Z of items and their tax status. Click to view for clarity.
If the gift is small that celebrates a personal event, e.g. flowers for a recent marriage etc. then HMRC class this as a ‘trivial benefit’ and you can apply to not pay National Insurance or tax on that gift.
Gifts to A N Other
Gifts to someone not an employee of the company are limited to £50 per recipient per year and are tax deductible. The gift must not be food, drink, alcohol, tobacco or vouchers and the gift must be prominently marked with the company name.
Companies making Gift Aid donations to charity can usually claim tax relief on the cost of these.
For other charitable donations, it gets a bit more complex, speak to an accountant for more guidance.
LEGAL, FINANCIAL & PROFESSIONAL
Speeding & Parking Fines
SPEEDING TICKETS AND PARKING FINES ARE NOT TAX DEDUCTIBLE.
Legal fees incurred by the company are tax deductible, except in specific situations.
As expected this is a highly complex area and it is recommended to get advice.
Accountancy fees are tax deductible against its full cost where their professional time is spent on the company’s accounts and not your own personal accounts.
If they do provide advice or time working on your personal accounts this will be classed as a taxable benefit by HMRC.
The company can cover the cost of an individuals subscription to a professional body with no extra tax or National Insurance required to be paid. The list of HMRC approved professional bodies can be found here.
If the professional body is not listed above, the subscription is not tax deductible and will be classed as a taxable benefit to the employee.
Be careful, the subscription payment must be made directly from the company to the professional body. If a personal expense is reimbursed it will be classed as part of your salary and you’ll have to pay PAYE (no National Insurance if it is a listed professional body by HMRC).
Training of employees is tax deductible providing the training is ‘wholly and exclusively’ for the purpose of the company’s business.