What Business Expenses Can I Claim?

If you run a business, you’ll incur different costs. As you probably know, you can claim most of the running costs as business expenses. The more business expenses you claim, the less tax you’ll pay.

But what are business expenses, and what business expenses can you claim? This article will help answer these questions.

By the end, you’ll know how to identify and track business expenses that you can claim to reduce your tax burden. You’ll also know how to claim business expenses.

What Are Business Expenses?

A business expense is a tax-deductible expense. That is, you can subtract the full amount from gross income, thereby reducing your taxable income (the amount of profit on which you will pay tax). More allowable business expenses means less taxable income, which also means less tax to pay.

For example, if your turnover is £30,000 and you claim £10,000 in allowable business expenses, the remaining £20,000 is your taxable income.

What constitutes a business expense is an ordinary and necessary cost incurred to operate a business. According to HMRC rules, a business expense must be wholly, exclusively, and necessary for business purposes.

What Are The Business Expenses That You Can Claim?

To determine the business expenses that you can claim, simply record all your expenses then identify those that are wholly and exclusively necessary for the business.

Expenses that tick the box and qualify as business expenses include:

·   Office, property, and equipment costs

·   Staff cost

·   Training costs

·   Clothing costs

·   Car, van, and travel costs

·   Reselling costs

·   Legal and financial costs

·   Marketing, entertainment, and subscriptions

·   Charitable donations (as a limited company)

·   Company events (for limited companies)

1. Office, Property, and Equipment Costs

Office items that you’d normally use for less than two years can be claimed as allowable business expenses. These include:

Stationery – You can claim expenses for phone, fax, and internet bills, postage, printing, printer ink, and cartridges. You can also claim computer software as a business expense if you use it for less than two years or if you use it for more than 2 years but make regular payments to renew the licence.

Rent – You can claim expenses for rent for business premises, water rates, utility bills, property insurance, and security.

Business premises – You can claim expenses for repairs and maintenance of business premises and equipment, and for alterations to install or replace equipment (if you use cash-basis accounting).

2. Staff Cost

You can claim business expenses for staff costs, such as:

·   Salaries, bonuses, and benefits

·   Employee training courses

·   Benefits

·   Pensions

·   Employer’s national insurance

·   Subcontractors and agency fees

3. Training Costs

You can claim business expenses for training that increases the skill and knowledge you use in your business. This does not include training courses to help you expand into new areas of business.

4. Clothing Costs

You can claim business expenses for clothing necessary for your work such as:

·   Uniforms

·   Protective clothing

·   Costumes (for actors or entertainers)

The ordinary clothing that you wear to work cannot be claimed as business expenses. For example, if you buy a new suit to wear to the office, then this cannot be claimed.

5. Car, Van, and Travel Costs

You can claim business expenses for some travel costs if the travel is necessary for your work. These include:

·   Vehicle insurance and vehicle licence fees

·   Fuel, repairs, and servicing of business vehicle

·   Parking

·   Hire charges

·   Breakdown cover

·   Train, bus, air, and taxi fares for business purposes

·   Hotel rooms when on business travels

·   Meals on overnight business trips

Note that the cost of commuting from your home to work (and back) is not an allowable business expense.

6. Reselling Goods Costs

You can claim expenses for the things you buy to sell on, such as:

·   Stock (goods for resale)

·   Raw material

·   Direct costs of producing goods

7. Legal and Financial Costs

You can claim business expenses for accountancy, legal, and other professional fees. These include:

·   Cost of hiring accountants solicitors surveyors and architects for business purposes

·   Professional indemnity insurance premiums

Note that fines for breaking the law or associated legal costs are not allowable business expenses. Financial charges that you can claim as business expenses include:

·   Bank, overdraft, and credit card charges

·   Interest on bank and business loans

·   Interest in hire purchase contracts

·   Leasing payments

·   Alternative finance payments

8. Marketing, Entertainment, and Subscriptions

Most of the expenses incurred in marketing your business are allowable business expenses. These include:

·   Advertising in newspapers and directories

·   Bulk mail advertising

·   Free samples you give

·   Costs of getting and maintaining a business website

You can also claim expenses for subscriptions like:

·   Cost of subscribing to trade or professional journals

·   Costs of gaining or retaining memberships in trade bodies or professional organisations related to your business

However, you cannot claim business expenses for entertainment costs even if they are wholly, exclusively, and necessary for the business. These include:

·   The cost of entertaining suppliers, clients, and customers

·   Costs of hosting hospitality events

However, you may be able to claim the cost of business entertainment as allowable expenses if you are a director in a limited company and it is important in the fulfilment of your duties.

9. Charitable Donations (as a limited company)

If you run a limited company, you can claim business expenses for many of your donations to charity, including:

·   Money

·   Items that your company produces or sells

·   Equipment

·   Land or property

·   Shares in another company (Note: shares in your own company are not allowable business expenses)

·   Employees

·   Sponsorship payments

Note that charitable donations are not allowable business expenses if you are self-employed. Also, for limited companies that can claim business expenses for charitable donations, payments to political parties do not qualify.

10. Company Events

You can claim business expenses for many of the events that your limited company host if they are necessary for the business. These would include annual Christmas parties and other events that cater to staff.

However, the event will have to meet certain conditions, such as each employee not inviting more than one person, and the budget not exceeding £150 per head.

What About Things You Use Both For Business And Personal Purposes?

As mentioned earlier, whatever qualifies as business expenses must be used wholly for your business.

When you use something for business and personal purposes, only the part used for the business can be claimed as business expenses. Therefore, you should find a reasonable way to divide the costs, identifying the part that was for business use and the part that was for personal use.

For example, if your mobile phone bill for the year is £300, you should identify the part that was for personal calls and business calls respectively. If you can determine that you spent £120 on personal calls, then you can claim the remaining £180 for business expenses.

Note that you sometimes need to find innovative ways to identify the portion of costs that is allowable business expenses. This is especially the case if you are self-employed and work from home. Imagine calculating the portion of the electricity bill that you can claim as an allowable expense.

Thankfully, you do not need to always use complex calculations to work out what portions of your bills are allowable business expenses. You can use HMRC’s simplified expenses to calculate business expenses for:

·   Vehicles

·   Working from home

·   Living on your business premise

Simplified expenses are simply flat rates that you can use to calculate your allowable business expense. For example, when working from home, you can claim business expenses based on the hours you worked from home as follows:

·   25 to 50 hours – £10

·   51 to 100 hours – £18

·   101 and more – £26

How Do You Claim Business Expenses?

Claiming business expenses is relatively easy. It only requires the following:

·   Keep records of costs

·   Add up the total for the tax year

·   the amount in your tax return

Keep Records of All Costs

You should take note of all your expenses. A good practice is to have an “expenses form” where you put down what you spend as you go.

You should also keep receipts of everything as proof of your costs. You will not send in the proof when you submit your tax return but you should have them because HMRC may ask for them. You are expected to keep your receipts for six years after filing your business expense claims.

Add Up the Total for the Tax Year

After identifying the individual costs that are necessary for your business simply add up the ones for the tax year to obtain your total allowable business expenses.

Include the Amount in Your Tax Return

Put the total allowable business expense on your Self-Assessment tax return and file your tax return online or send a paper form.

Final Thoughts

There are many business expenses that you can claim on your tax return. Some common business expenses include wages, travel, advertising, office supplies, and computer equipment. You should keep track of all of your business expenses throughout the year so that you can accurately report them on your tax return.