Minimise Your Tax Bill with Allowable Business Expenses
Allowable Expenses is a term used to describe costs or expenses you incur while running your business that you can claim as tax deductions therefore reducing the amount of tax you pay on your profits. However what expenses you can claim back differs if you are a sole trader / partnership or a limited company.
Sole Trader / Partnership
As a sole trader or partner in a partnership, HMRC considers you and the business as the same legal entity, meaning that for you, an “expense” is the same as a “business cost” because you legally are the business. Instead of claiming back expenses from a company, you would include these costs in your business accounts for tax relief.
This includes those that you paid from your personal account. When we say “claim tax relief” we mean to put the cost into your business accounts and subtract it from the profit figure that you pay taxes on.
Examples of allowable costs:
Computer software / subscriptions – If only used for business purposes.
Telephone – if solely business, if not can claim back a percentage of the business use.
Stationery – If it’s for the business you can claim the full amount back.
Utilities – You can claim tax relief on the full cost of water, heating and lighting at your business office.
Rent – If you rent an office that you use just for business, you can claim tax relief on the full cost of that rent. The exception is a rent deposit which you cannot claim tax relief from.
Working From Home – For Utilities you can claim a percentage of the costs based on how much you use your home for business. For property repairs, if it solely relates to the part of your home that’s used for business then the full amount can be included.
Entertainment – For entertainment to be allowable it must be an annual event (e.g. Christmas party), open to all staff and costs less than £150 per guest.
Limited Company
In a limited company even if you are the sole director, you and the company are considered separate legal entities. If the company can claim tax relief, this goes in the companies’ accounts. If we say, ‘you can claim from the company’, that means the company can pay you back for costs that you incur personally without either of you paying more tax. These costs are usually allowable for tax relief in the company’s accounts.
Examples of allowable costs:
Broadband / Telephone – If your broadband / telephone contracts are in the business name you can claim back tax relief on the full cost.
Travel Expenses – If you travel in your own car for business, the company can pay you back per business miles travelled at HMRC approved rates.
Advertising and Marketing – The company can claim tax relief on advertising and marketing, not including taking a client out for lunch.
Utilities – The company can claim the full cost of heating, water and lighting your business premises for tax relief.
Have Questions? Contact Our Team for Expert Advice:
If you have any questions about what expenses are allowable, feel free to contact our expert team here.