• CALA Associates Ltd

What Expenses Can I Claim Through My Business?

Updated: Dec 7, 2021

Ensuring your business is claiming the most allowable expenses that it can is a great way of reducing Corporation Tax or Income Tax; however, there are rules about what can and can’t be claimed through your business. If you get this wrong, you could find yourself incurring action from HMRC.

Do you know what you can put through your business and what you can’t? If not, read on….

Fundamentally the expense needs to be wholly, exclusively, and necessary for the purposes of your business.

Wholly and exclusively is a simple concept to define - if it serves a purpose beyond your business then it won’t be allowable. For example, if you were to purchase a train ticket to London and back for a day out with your family you couldn’t claim this simply because you bought some business stationery at WH Smiths at the same time - which would be allowable, by the way.

Necessary can be a little more challenging (and fundamentally more subjective) to define. For example, if you purchased a pool table for your office - this might be great fun for your employees; however, it’s not necessary in operating your business. Therefore, this wouldn’t be an allowable expense - ultimately, this is a little less black and white but use your common sense and consider this question:

If HMRC challenged me on this, could I present a reasonable argument that this expense was wholly, exclusively, and necessary?

If the answer isn’t a yes then you’re probably best not putting it through your business or disallowing it for tax purposes/letting your accountant know that it is not a legitimate expense. Remember, we don’t have crystal balls - we don’t know why you got the train to London.

One of the most common grey areas and one we see people getting wrong a lot is food and drinks. The test above applied to this is quite difficult given we need food and drink to simply be alive so, I guess it is always necessary, and given you’re at work it’s required to continue working? Not quite…there are particular rules surrounding when food and drink can be claimed through your business.

Given the complexities with this, we have a whole article tackling this here.

If you do your own bookkeeping/accounting, here’s an outline of what’s likely to be recoverable:

  • Direct costs e.g. stock or materials for resale.

  • Office costs e.g. Stationary, postage, software.

  • Legal and accounting fees.

  • Salaries and pensions.

  • Training (providing it’s related to the business role).

  • PPE / branded uniforms.

  • Travel expenses e.g. fuel, public transport providing it’s wholly for business reasons.

  • Equipment e.g. printers, office furniture or job specific tools, etc

  • Premises costs e.g. internet, phone, heat/power, and rates.

  • Advertising e.g. website, social media ads, and business cards.

  • Bank fees and interest.

  • Insurance

Remember this list isn’t exhaustive and using/running things by a good accountant (like us!) is advised.

For any expenses it’s important to keep records - HMRC can audit your records up to six years after the transaction took place. We always recommend using cloud-based accounting software like Xero and uploading backup of these documents into the software for ease of access and safekeeping.

It may seem harmless to pop through the odd expense that isn’t really business, what harm can it do? Actually, it can put you and your business at risk. HMRC has a number of control checks that could trigger a review. If that happens and HMRC deems that the expenses you have claimed are not valid they can request the extra tax to be paid as well as interest and penalties. At this point, you’ll really wish you hadn’t tried to save yourself that little bit of tax.

On a separate note, falsely increasing your expenses to reduce your profit (aside from being illegal) may ultimately work against you if you need to prove you have good income e.g. in the case of a mortgage application. In short, consider the bigger picture if you’re ever thinking about putting through an expense that’s a little in the grey!

Spend to save...

You may be thinking that investing in accounting software like Xero and engaging an accountant to handle your accounts and bookkeeping is an expense you’d rather not pay; however, you may end up paying a much higher price if you don’t and get things wrong.

If you’re unsure that you’re claiming valid expenses or in any doubt that you’re being compliant then reach out to us. We can support you/your business and put your mind at ease.

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