In the UK, allowable expenses are those incurred for the purposes of the business. Other transactions in which the price is not set on commercial terms should therefore be treated as disallowable expenses.

Tax-deductible expenses include, in particular:

1) interest incurred for business purposes and paid in the UK

2) fees and costs associated with the grant of a patent, etc.

3) statutory payments to employees

 

Non-deductible expenses include, in particular:

1) any expense not incurred wholly for the purposes of the business

2) dividends paid

3) payments connected with criminal activity

Making Sure Your Business Expenses Are Deductible

Claiming every expense the law allows is one of the simplest ways for a company to reduce its tax bill legitimately. Equally, claiming costs that are not allowable can lead to adjustments, interest and penalties. The general principle for a company in England is that expenses must be incurred wholly and exclusively for the purposes of the trade, but applying that principle in practice requires care.

Costs That Are Often Allowable

Many day-to-day costs of running a business will normally be deductible, provided they are genuinely for business purposes. These can include:

  • Staff salaries and employer contributions
  • Rent, utilities and office costs
  • Accountancy, legal and other professional fees connected with the trade
  • Marketing and advertising
  • Business travel
  • Interest on business borrowing, subject to the relevant rules

Capital Expenditure

Money spent on assets that the business will use over several years, such as equipment, machinery or vehicles, is treated differently from everyday running costs. Rather than deducting the full cost as an ordinary expense, the company usually claims capital allowances. Various allowances exist and the rules can change, so it is worth checking how planned purchases will be treated before you make them.

Grey Areas

Some expenses have both a business and a private element, for example a car, a mobile phone or travel that combines work and leisure. Others, such as client entertainment, are commonly restricted. Where costs relate to directors or shareholders personally, there may also be benefit-in-kind or other tax consequences for the individual. Keeping clear records and evidence of the business purpose is the best way to support your claims.

Good Habits

Keep receipts and invoices, record the reason for each significant expense and separate business and personal spending, ideally by using a dedicated business bank account. This makes year-end accounts quicker and helps if HM Revenue and Customs ever asks questions.

If you are unsure whether a particular cost can be claimed, contact eTuls. Our accountants can review your expenses and help you prepare accurate accounts and tax returns.