What Expenses Can I Claim Against Tax ?

This is a guide to the expenses which businesses can claim against tax.

Please note there are some significant differences for expenses claims between being a Self Employed/Sole Trader and Limited Companies.

There are similarities in the lists of allowable expenses for Sole Traders and Limited Companies, but there are key differences which can lead to confusion. If in doubt check with your accountant or HMRC.

Examples of Expenses which can be claimed by both Self Employed/Sole Traders and Limited Companies:

• Costs relating to the construction and delivery of products for resale.
• Business premises (not your home) expenses, including business rates, rents, electricity and gas.
• Office expenses including stationery, postage and computing consumables.
• Marketing expenses including advertising, brochures, business cards.
• Staff costs, including salaries & wages, employer's National Insurance, clothing which is clearly branded for the business, health and safety clothing.

SELF EMPLOYED / SOLE TRADERS

A critical distinction between expenses claims for Self Employed people and Limited Companies is 'apportionment'. This means that, for some expenses, Self Employed people can a claim a business proportion of the total cost. Examples of this are use of home, mobile phone contracts and computers.

Also please note, if you are Self Employed, you are not an employee of the business.

People who are Self Employed may claim expenses which are "wholly and exclusively" incurred in the course of the business.

It is a surprise to many that certain expense claims are very limited and restricted

Cars and Vans

The simplest method for a Self Employed person is to claim the flat mileage rate of 45p per mile for the first 10,000 miles, then 25p after that. A further 5p per mile can be added for a passenger.

The flat rate covers all vehicle costs including fuel, repairs, insurance, and the purchase price of the vehicle. No other vehicle-related costs can be claimed, although parking fees and tolls can be claimed additionally.

A record of all business journeys should be kept, including date, mileage and purpose of journey.

The more complicated method is to use the business/private apportionment option. The purchase price of the vehicle is claimed using Capital Allowances (see below) using the business percentage. Then all the running costs must all be listed and receipts kept, and then the business percentage is claimed.

It is not permitted to switch between these options for the same vehicle.

Travel - Self Employed/Sole Traders

As a Self Employed person, your 'business' journeys which are "regular and predicatable" are not allowed as a tax claim. Only ad hoc journeys can be claimed for against tax.

For example, if a plumber has a lock-up, the journey from home to the lock-up is not a tax-allowable expense, it is categorised as a private journey. However, journeys from the lock-up, and which are varying in nature to different customers, are a tax-allowable expense.

This applies to all means of transport, including vans, cars, trains and buses.

Meals

Meals cannot be claimed by people who go to the same place every day. HMRC take the view that people have to eat anyway. If you are 'on the move' and in a different place every day, then you may claim for your lunch bought out.
GOV UK Link: "travel and subsistence: expenditure on meals and accommodation"

Overnight subsistence and accommodation expenses

If a business trip by a Self Employed person necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible. There are no fixed allowable amounts.

Use Of Home

There two options to claim a Use of Home expense:

The first option is to use the appropriate flat rate allowed by HMRC:
GOV UK link: working from home

The second option is to measure the space in your home that is used for the business, as a proportion of the home, exluding kitchen and bathroom(s). Then use that proportion against utility bills. Home rent payments can also be apportioned, but it is recommended that mortgage payments are not included because this can cause complications with Capital Gains Tax when the home is sold.

Training

For Self Employed people, the claiming of training expenses is restricted, and not as generous as for employees of Limited Companies.





Examples of Expenses not allowed as a tax deduction for Self Employed/Sole Traders:
• Fines and penalties
• Entertaining customers or suppliers
• Private meals
• Mileage to and from a regular "place of business"
• Unbranded clothing
• National Insurance contributions

LIMITED COMPANIES

If you are a Director of a limited company, you are an employee of it, even if you do not take a salary.

Limited Companies may claim expenses which are "wholly and exclusively" incurred in the course of business.


Examples of Expenses not allowed as a tax deduction for limited companies and their employees:
• Fines and penalties
• Entertaining customers or suppliers
• Private meals
• Mileage to and from a permanent place of work
• Unbranded clothing

Capital Items / Fixed Assets

Major expenses items, typically over £500, eg. equipment, computers, vehicles, are classed as "Capital Expenditure" for tax purposes.

They are allowed for taxation as Capital Allowances which is a different system than expenses. The Capital Allowances system changes from year to year, but frequently a business with relatively low value capital purchases, eg. a personal computer, will be able to claim the full cost in the year of purchase.

If you choose the new Cash Basis then many Capital purchases will be allowed as an expense in the year of purchase.