Put simply, an allowable business expense is the money that you have to spend to run your business. The tax rules allow these expenses to be deducted from the trading income, reducing the business’s profits and so the tax liability – either corporation tax for a limited company; or income tax and national insurance for a sole trader.
Allowable business expenses include:
- Stock that you sell, or materials used
- Equipment you use to make your products, as well as computers, software, photocopiers
- Payments to employees and outside contractors, including Income tax and National Insurance paid on your employees’ wages.
- Rent, rates, gas and electricity for your business premises.
- Telephone and broadband costs
- Postage and stationery costs
- Business insurance
- Advertising and marketing costs
- Clothing, where it is a uniform or essential for your work, such as a costume as you are an entertainer.
- Motor expenses, fuel, insurance and servicing costs, as well as other travel costs relating to business travel
- Financial and legal expenses, such as the interest on any business loans, overdraft, credit card and bank charges; and any accountancy and solicitor fees
- The cost of a company event, such as the staff Christmas party, as long as the total does not exceed £150 per person per year
- Training costs to help you improve your skills in your current business; and subscriptions to professional bodies appropriate to your current business
- If you work from home you can claim a proportion of your bills as allowable expenses. This includes heating, electricity, internet and telephone, mortgage interest or rent and council tax. However, because you are using the property for personal use as well, you cannot claim your full bill. You will need to find a fair method for calculating the right proportion. Alternatively you can use HMRC’s flat rate, currently £6 per week, £312 per year.
When you are recording the expenses your business can claim, always keep in mind that the costs need to have been incurred entirely and exclusively for the running of your business. You cannot claim for costs that have a dual personal and business purpose. For example:
- You can only claim for business trips, not for daily travel between home and work
- You can only claim staff costs for people who work in the business, not for nanny who enables you to work in your business
- Although entertainment can be an important part of winning and retaining clients, entertainment costs are not allowable expenses.
- You can only claim for clothing which is a uniform or essential for your work; regular clothing which is worn at work is not an allowable expense.
- Whilst you can claim subsistence expenses for meals and accommodation while working away from your normal workplace, these claims must meet specific conditions, primarily that the expenses are necessary for work, reasonable, and additional to normal living costs. You can not claim your weekly supermarket shopping as subsistence.
- Loan repayment of personal loans, even if it is to help run your business
- Fines and penalties due to breaking the law, such as parking fines and VAT penalties
- Charitable, club and political party donations.
Should you have any questions about what is allowable and not allowable, please contact Siobhan, Andrew or Jackie.
