As a limited company director, you need to know what expenses you can claim back and how to handle these in your accounts. Managing expenses is an essential part of running a limited company. Your company will receive a corporation tax relief for the business expenses incurred.
This handy guide explains the most common business expenses that you should consider claiming from your limited company. The business owner may see claiming business expenses as a difficult task, but it does not need to be as simplify the process for you.
Please contact us if you are in doubt.
Accountancy fees
The good news is that your accountancy fees are allowable for a tax deduction. Therefore, the taxman is in effect making a 19% contribution towards your fees (for Ltd Co’s) and potentially more for sole traders.
Accommodation
You can claim accommodation expense when you travel to a temporary location for your business. HMRC will allow reasonable accommodation expense.
It is important to note that there must be no personal benefit to any claim such as providing accommodation for family members, i.e. the expense must be necessary, wholly and exclusively for the business.
Advertising & Marketing
You can claim the following expenses as your advertising & marketing cost.
- advertising in newspapers or directories
- bulk mail advertising (mailshots)
- free samples
- website costs
Annual events/Christmas party
A yearly event such as a Christmas party can be claimed as a business expense provided:
- It is a yearly event such as a Christmas party or summer barbeque
- It is open to all employees
- The cost per head does not exceed £150 (including VAT)
If the cost per head exceeds £150, then the business will incur the tax on the whole amount, not just the amount that exceeds £150.
You can also organise more than one annual events during the tax year provided the total cost of the events does not exceed £150 per head. The cost of the event can include entertainment, accommodation, travel etc.
Full details about annual parties can be found in the HMRC Employment Manual EIM21690.
Bank charges
Your bank may charge you a small fee for your business accounts. You can claim bank, overdraft and credit card charges as a business expense.
Books & Magazines
If the business purchases the necessary books and magazines to conduct business activity, then it can be claimed as a business expense.
Example:
If a technical manual is explicitly purchased related to business activity, then it can be claimed.
Broadband
If you carry out business activity from home, using your residential broadband, you cannot claim the broadband cost if the broadband was already in place, unless you can split the business from the personal element. Having two broadband lines could show one line is 100% for business.
If you have no broadband contract at home and need internet access to carry out your business activity, then the costs can be reclaimed from your company.
Car hire
You can claim allowable business expenses for:
- vehicle insurance
- fuel
- Hire charges
- vehicle licence fees
- Congestion charges
You can not claim for:
- the cost of personal use
- fines
- travel between home and work
Client entertainment
Your business can pay for client entertainment. The expense is not tax-deductible. The company will not receive a corporation tax relief.
Clothing – uniform and protective
You can claim the cost of either of the following:
- Necessary protective clothing to conduct duties such as safety footwear or glasses.
- The work uniform is worn while carrying out your duties, for example, a coat that carries a distinctive logo of your company
Course Fees
If the business offers a course to upgrade a current skill set and not to develop a new one, then the training cost can be claimed as a business expense. The costs associated with the training such as books or additional travel costs can also be claimed as a part of the training cost.
Donations to charity
Your limited company will receive corporation tax relief and pays less Corporation Tax when it gives the following to charity:
- money
- equipment or trading stock (items it makes or sells)
- land, property or shares in another company (shares in your own company don’t qualify)
- sponsorship payments
Eye tests.
If your business activity involves regular use of a computer, then your business can claim the cost of an eye as a business expense. However, the cost of glasses cannot be claimed for unless they are prescription safety equipment.
Gifts and trivial benefits from your limited company
You don’t have to pay tax on a gift or benefit for your employee if all of the following conditions apply:
- The gift cost you £50or less to provide
- It isn’t a reward for the employee’s work or performance
- it isn’t in terms of their employment contract
Above is an example of a trivial benefit. You have to pay tax on any gifts or benefits that don’t meet all these criteria.
Office purchases
Minor expenses with receipts/invoices that are used wholly and exclusively for the business can be claimable. This includes postage, computer
consumables and office stationery.
Parking cost
The parking cost can be an allowable expense if the business has incurred the cost for the qualifying business journeys that:
- Form part of business activities, i.e. site or client visits
- Trips related to attendance at a temporary workplace
Pensions
Your business can contribute to your pension provided your company has set up a contract with a pension provider. The annual limited for the pension contribution is £40,000. Please speak to your financial advisor for more information on the pension.
Professional fees and subscriptions cost
HMRC has a list of an approved professional organisation which can be found here. If you are a member of such an approved professional organisation and the professional fees relates to your business activities, then the fees can be an allowable expense.
Salaries
A salary paid to employee or director will be an allowable expense. The directors may pay a tax-efficient salary up to the NIC threshold, i.e. before the director become liable paying NICs. The director will save money by paying a lower monthly salary because the salary below the NIC threshold will save employee and employer NIC.
Mobile telephone, landline and broadband
Your business can claim the telephone and broadband cost as an allowable expense If your business has a contract with the service provider and the telephone/broadband is used “wholly and exclusively” for the business. By having a separate phone line for ‘only business’, it shows this is 100% for business.
If your company has a broadband contract and pays the broadband invoices, then the business can claim the broadband cost as an allowable business expense.
Use of your home as an office for your business.
HMRC allows you to claim £4 per week without keeping any detailed records or receipts. HMRC doesn’t consider this to be a benefit in kind, which means you won’t have any personal tax implications.
The business owner must be able to prove that you regularly spend time carrying out business activity in this office space.
Office equipment that is essential for your professional duties will qualify for tax relief. You may also claim reasonable tax relief for the cost of equipping furnishing an office, (for example chairs or bookcases).
Travel & subsistence
The business can claim the travel expense as an allowable expense if the travel cost such as train tickets and taxi fares that are necessary for business activity.
You may also be able to claim for food or overnight expenses. You can claim the tax relief for the money you have spent on things like:
- Public transport costs.
- Hotel accommodation if you have to stay overnight
- Food and drink
- Congestion charges and tolls
- Parking fees.
- Business phone calls and printing costs.
You can only claim for travelling to and from a temporary workplace
We hope you found the guide useful if you have any questions, then please get in touch. You can call us on 020 3488 3135.
We offer a free business consultation. Why not speak to our advisors to see how we could help?