As most people know, if you’re thinking of starting a new business, or if you’re already running a business, you can claim a portion of your costs as business expenses.
This is a great way to support entrepreneurs and increase their chances of success. why?
This is because businesses pay taxes on their profits, so when you claim an expense, that amount is deducted. Therefore, they pay taxes at a much lower amount.
If you take it seriously, you can save a considerable amount of money.
So what can you charge for?
Main categories of project costs
Business trip mileage
Mileage allowance payments (MAP) are payments to employees for business travel. You are allowed to give an employee a certain amount of her MAP each year before reporting it to HMRC. This is known as the “acceptance amount”.
This is calculated by multiplying the employee’s annual travel by the vehicle’s cost per mile (see below).
If your employees use multiple vehicles, calculate them all together.
Tax rate per business mile
Vehicle type | first 10,000 miles | 10,000 miles or more |
---|---|---|
car and van | 45 pence | 25 pence |
motorcycle | 24p | 24p |
bike | 20 pence | 20 pence |
Source: HMRC
If the amount exceeds the authorized amount, it must be reported on Form P11D. You then add the amount in excess of the approved amount to the employee’s paycheck and pay it back, with taxes deducted as usual.
Anything below the approved amount does not need to be reported to HMRC, but employees can receive mileage allowance relief for any unused balance of the approved amount. He can also make a separate option report to HMRC for such unused balances under the Mileage Allowance Relief Option Reporting Scheme (MARORS). To join the scheme, contact HMRC.
home office equipment
Another well-known option is to claim for supplies such as office equipment or printer ink that are essential to your company’s operations. Please note that these expense claims are not suitable for telecommuters.
Generally, items that will be used within two years should be recorded as expenses. This includes:
- Telephone (landline), mobile phone, fax, internet charges
- postage
- stationery
- printing
- printer ink and cartridges
- Your business uses computer software that is less than two years old.
- Computer software if the company pays regularly to renew the license (even if used for more than two years)
If you run a limited company, there are a few more ways to claim equipment.
For example, if you have a laptop, you can buy it yourself through your company. It then becomes an asset of the company and costs you a billable expense.
On top of that, you personally receive money directly from the company tax-free.
clothing and entertainment
Employees can also claim costs for clothing (such as hiring smart suits for events or uniforms) and the annual staff party, as long as the cost per person does not exceed £150.
rent and bills
If you run a business from home, you can also claim rent, mortgage, bills, etc. by charging a portion of your expenses through your company, although there are some restrictions.
All rent amounts you can charge are based on the actual space dedicated to your business.
For example, if you have an office used solely for business that takes up 10 percent of the square footage of your apartment, you can claim 10 percent of your rent as an expense.
If you work in the room half the time and use it as a regular room the other half of the time, you can only claim 5 percent of your rent back.
Invoices work similarly, so you need to separate them into those you use for business and those you don’t.
If you work away from home, you can claim the following expenses:
- Office rent
- Business rates and water rates
- utility bill
- property insurance
- safety
training course
You can claim allowable business expenses for training that provides you with the knowledge and skills to better run your business. This also includes refresher courses.
This course should help you run your business. However, you cannot apply to take training courses that will help you start your business or expand into new business areas. This includes anything related to your current business.
Marketing and subscriptions
In terms of marketing, it can be argued that:
- Advertising in newspapers and directories
- bulk email advertising
- free samples
- website costs
However, you may not charge entertainment to clients, suppliers, or customers. Additionally, you may not claim entertainment for your event.
In addition, apply for membership in trade and professional journals, trade associations, and professional organizations. The latter can only be claimed if it is relevant to your business. You can’t ask for payments to political parties, gym memberships, or donations to charities. Having said that, you may be able to request payment of sponsorship fees.
capital allowance
Another area of focus is capital reserves, broadly known as “plant and machinery.” This includes things like:
- machine
- Facilities (fully equipped kitchen, bathroom, fire protection, CCTV system)
You cannot claim expenses for some of these, so you will need to claim capital allowance instead. However, it can be a fairly complex area. In most cases, you can use your annual investment allowance to deduct the full amount of these items from your pre-tax income.
business expense tracker
If you want to simplify your company’s expense process, there are many software tools that can help make life easier for you and your employees.
Compare providers today to find the best option for your business.
There are many other things you can claim expenses for and HMRC has a full list here.
You will obviously need proof of these expenditures if you wish to make a claim. Make sure to keep track of all your invoices, receipts, and documents and keep them in a safe place.
Keep it in good order as it will save you a lot of time in the future.
A final thing to remember is that HMRC can come back and request proof of expenses within six years of the expense being claimed.
So if you’re thinking of destroying your documents once HMRC accepts your account, think again. If you can’t prove it when asked later, you may be asked for a refund.
Read more about business expenses
Navigating Business Expenses as a Limited Company – Free Agent Chief Accountant Emily Coltman shares some tips for negotiating the minefield of business expenses
How to Manage Business Expenses – Cash is the lifeblood of any business, but entrepreneurs often spend more money than necessary, putting a strain on their cash flow.Here’s how to manage your business expenses more effectively
Claiming mobile phone expenses as part of your business – What is the standard policy for mobile phone expenses? Can I claim any refund from the tax office for the use of my business mobile phone?