Maximising Your Business Expenses is one of the most important topics you should know about as business owner. In fact, it is one of the most queried topics an accountant gets from customers. Though every business owner like you understands the obligation to pay taxes, still you don’t want to pay more taxes than you should.
Please note that tax rules are different for sole traders from those for limited companies. Limited companies are separate entities from their owners, so whatever money you take from the profits for yourself will have to be declared to HMRC as dividends, for which you will pay taxes in line with the tax rules for dividends. If you use non-monetary items from your company, you will have to declare these to HMRC as company benefits.
Business expenses specific to limited companies
What are business expanses ?
You pay taxes on the amount you make in sales (also known as turnover) after allowable expenses were deducted. The more allowable expenses you can deduct, the less the profit is on which you have to pay taxes. In other words, allowable expenses reduce the amount of profit on which limited companies pay business tax (also known corporation tax).
However, not all business expenses are allowable as deductions from the turnover for tax purposes, and you don’t want to get in trouble with HMRC for deducting expenses that are not allowable.
Turning this on its head, you don’t want to disregard expenses that are allowable, because maximising your business expenses is the way to make sure you pay the right amount of tax, not more. Afterall, you would rather invest that money in your own business rather than waste it on taxes unnecessarily.
What expenses can I claim ?
There are quite a few different categories and types of expenditure that can be claimed. If any item is used both for personal as well as for business use, then you will only be able to deduct the percentage of that expense that relates to the business use.
1. Capital allowances. These are the costs you incur for buying new machines, equipment and assets for your business. Depending on what these items are, there are different capital allowances applicable such that all or part of the cost can be deducted from the turnover to come to the taxable profit. Research and Development Grants (R&D) are considered a capital allowance.
2. Office, property and equipment. In general, you can deduct from your turnover expenses related to office, property and equipment such as: stationary including printing material and supplies, postage, phone bills as well computer software.
In this category there is also money you spend on paying rent for your business offices or premises, insurance on the property rented, business rates as well as utility bills.
3. Travel costs. These costs refer only to travel for business purposes, not for travel from home to your office and back. As such, all types of travel costs incurred for business purposes can be deducted from your turnover: fuel, parking fees (but not parking tickets incurred by company directors, though parking tickets incurred by employees are allowed), train or bus fares, vehicle insurance, lodging and sustenance on overnight business trips.
4. Clothing. If your business requires employees to wear a uniform or protective clothing, the costs incurred on these are also an allowable expenditure.
5. Staff costs. Some of these are processed through payroll by your payroll provider, such as salaries, pensions and employer’s NIC (National Insurance Contributions). They are deductible from your turnover along with employee benefits and training courses.
6. Cost of sale. This is just a fancy term for the money you spend purchasing goods in order to sell them, purchasing raw materials to make goods that you wish to sell and the costs associated with these. This expenditure is deductible in full.
7. Financial and legal fees. These are money you pay for accountancy services, money you pay for legal and other type of professional services you need for your business, interest your business pays on loans from banks and other financial institutions.
8. Miscellaneous expenses. These relate to money you pay for marketing, advertising, website maintenance and care, trade or professional memberships as well as journal subscriptions.
How can I claim business expenses ?
As you probably know already, you must keep all receipts and invoices for each and every transaction made by your business. With respect to VAT, VAT registered businesses are required by law to keep a digital copy of all their VAT receipts and invoices. HMRC is in the process of rolling out this requirement with respect to corporation tax (business tax) as well.
You are required by law to keep all these records for 7 years should HMRC decide to audit your accounts.
No matter how busy you are, it ultimately pays off to be well organized with all of these receipts and invoices. It will save you spending more money on accounting fees and it will help you be ready in time for filing the corporation tax return.
Hopefully, you have come to a more clear picture about maximising your business expenses.
Business expenses specific to sole traders (sole entrepreneurs)
You may not be so worried about business expenses incurred by limited companies, because you are a sole trader who works from home. But you still need to submit your self-assessment tax return to HMRC once a year, at the latest on the 31st of January. Most of the business expenses listed above for limited companies apply to sole traders, as well.
Can I claim expenses if I work from home ?
The good news is you can deduct from your business profit expenses related to the use of your home for your business. But there is a caveat: if you declare a room or part of the property you live in exclusively used for business purposes, then when you sell the property, you will have to pay tax on the profit you make corresponding to this part of the property that was declared exclusively used for business purposes. In principle this means that it is better not to declare any part of your house or property as being used exclusively for business.
Can I claim motor expenses ?
You can claim motor expenses in either of two ways: you can claim a portion of your motor expenses that corresponds to the business use or you can charge flat rate expenses. It is up to you to decide which of these methods works better for you, but it is worth asking your accountant for help to decide.
If you choose the flat rate, then you the allowable expenses are £0.45 per mile for the first 10000 miles you travelled for business purposes and £0.25 per mile after that. Don’t forget to keep a record of the miles you travel.
If you do not use the flat rate, then you will claim capital allowances for the vehicle as well as running costs. Of course, the type of capital allowance claimed depends on the type of the vehicle.
There are specific expenses that landlords can claim depending on whether they rent a property long term or whether they rent out a property as Airbnb.
Maximising your business expenses may seem a daunting task. We’ll give you that.
How can LAS Accounting help you ?
When it comes to navigating complex accounting areas such as taxes, you may find you want professional help. Spending less on tax means you have got more money to put towards your financial goals, and a financial adviser could help you put together a plan. So maximising your business expenses is a key factor in this plan.
LAS Accounting uses cloud accounting which will save you time and money by having all the transactions of the company neatly processed and stored along with all digital records. And with an accountant alongside you, you will get so much more out of your software. We’re here to support your growing business in any way we can.
Now might be the ideal time to engage the services of an accountant to do all the work for you and provide you with all the tax advice you need.
Don’t hesitate to get in touch for any further enquiries at: firstname.lastname@example.org