PROPERTY JOURNAL

Which expenses are tax deductible?

It is not always straightforward to tell which business expenses are tax-deductible, and which are not and there are some that often go unclaimed

Author: David Redfern

15 October 2019

Determining which business expenses are legitimate deductibles and which are not may seem pretty simple. However, not all companies are fully conversant with HMRC regulations - as the tax authority's annual publication of ridiculous expense claims demonstrates.

So which business expenses can you deduct from your company profits, and which must be shouldered by the business?

Common deductible expenses

Most businesses will be aware of the main areas of deductible expense such as equipment, rent and rates, insurance, advertising costs, and employee salaries. When purchasing business equipment, though, consideration should be given to whether capital allowances or the annual investment allowance would be a more efficient way of deducting those costs.

Professional fees such as those for accountants are another common allowable expense. However, any professional work such as this should be related solely to company business: if your accountant helps you with your self-assessment return, then this is a benefit in kind and it is liable for National Insurance contributions. HMRC expects all business expenditure to be wholly and exclusively made in the pursuit of business activities.

Business travel is also deductible, whether you are reimbursing your employees using the approved mileage allowance payments method, which is worth 45p per mile (28p/km) up to 10,000 miles (16,100km) and 25p thereafter (15.5p/km), or you are deducting the cost of accommodation, meals for overnight stays and fares for employees travelling for business purposes.

Business travel is also deductible, whether you are reimbursing your employees using the approved mileage allowance payments method, which is worth 45p per mile (28p/km) up to 10,000 miles (16,100km) and 25p thereafter (15.5p/km), or you are deducting the cost of accommodation, meals for overnight stays and fares for employees travelling for business purposes.

Commonly forgotten expenses

There are a number of other expenses that are less commonly known but should be considered in order to ensure that your business runs as efficiently as possible.

Bank charges and fees are a frequently forgotten deductible expense for example, as are any written-off bad debts. Charitable donations can be deducted from company profits before corporation tax, although sole traders using self-assessment can only deduct donations made through gift aid. Legal fees can also be deducted, so long as they do not relate to any wrongdoing or criminal activity on your part.

Additionally, training costs are allowable if they relate to improving skills used at work. Similarly, subscriptions to professional bodies such as RICS are deductible, as long as they are directly relatable to your employment and the body is approved by HMRC

Staff entertainment costs such as a Christmas party can also be deducted, but there is a limit of £150 per head; this can be spread over more than one event, but events must be open to all employees, and if the total cost exceeds the £150 limit then none of it is deductible.

Non-deductible expenses

While the general rule is that any expense incurred during the course of doing business is deductible, there are a few exceptions that can catch companies unawares. One expense that is often misunderstood is client entertainment: such costs are not deductible, with HMRC's view being that business deals can be made just as easily in an office over a coffee as an expensive meal in an exclusive restaurant. If you choose to incur these costs, therefore, your company will have to bear them.

Furthermore, unless clothing expenses are for protective workwear or a company uniform with a logo, they are not allowable as deductions but considered part and parcel of daily living along with your commute, food and accommodation.

Ensuring that your company makes full use of its deductible expenses and capital allowances will contribute to the financial health of your business by making it fully tax-efficient. However, attempting to deduct expenses that are not allowable is likely to bring unwanted attention from HMRC - so treating your expenses correctly is essential.

David Redfern is the founder of DSR Tax Claims Ltd davidr@dsrtaxclaims.co.uk

Related competencies include: Capital allowances and taxation

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