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What am I allowed to claim as a business expense? Part 2

10 September 2014 by Crystal HR & Payroll Ltd

Continuing the article What am I allowed to claim as a business expense?

Accountancy, legal and professional fees

You may choose to use an accountant or bookkeeper to prepare your businesses accounts and complete your tax return, but HMRC do not say that you have to.

The cost of using a professional such as an accountant, solicitor or architect is an allowable business expense, as are other professional fees, such as professional indemnity and public liability insurance.

Public liability Insurance covers a business for damages and compensation in the event of injury or death to a member of the public, or damage caused to their property.

Indemnity insurance protects a business against any claims arising from bad or negligent advice or services.

Telephone, fax, stationery and other office costs

Telephone, stationery, postage, computer running costs and internet charges are all allowable expenses.

If you use a telephone privately as well as for business, you must keep a record of business and private calls. Only business calls can be claimed, you cannot claim for private calls.

You can use itemised bills to work out the business use. You can also use the itemised bills to claim a proportion of the line rental.

These rules apply to mobile phones as well as landlines.

Money spent on an internet connection (including broadband and wireless broadband) is allowable if you use the connection solely for business purposes. Where there is ‘mixed’ (business/non-business) use, follow the approach used for telephone rentals.

Keep a record of total telephone and internet costs so that you can work out the amount spent in relation to your business.

Clothing and training

Clothing

For clothing to be an allowable expense, it has to be essential for your business, for example, protective overalls, headgear, gloves, or other specialised items of clothing.

You cannot claim the cost of ordinary everyday clothing, even if it was bought specifically for business use, for example a business suit.

Training

You can claim for the cost of training if the purpose of the training is to update skills or expertise, such as a Continuous Professional Development (CPD) course or advanced skills training.

If the purpose of the training is to update professional expertise and skills, then the cost of the training is generally allowed.

If, however, the result of the training is a new skill or qualification, then the cost of the training is not allowable for the existing business.

Training undertaken for academic qualifications such as GCSE, A levels and PhD’s is not allowable.

Capital expenditure

The following guidance applies only if you are not using the cash basis.

You might buy large or lasting items to use in your business, such as a car, van, computer or other equipment. The amount you spend on such items is called capital expenditure.

The rules for working out how much you can claim as capital expenditure are different from the rules for business expenditure which we have just looked at on the previous screens. Generally, you can claim a percentage of their cost or value. You need to keep a separate record of these items such as the date you bought the item and how much it cost and also keep the receipts or invoices.

Capital expenditure will probably be new to you when you first set up your business and can be one of the most difficult areas you will come across. For more information about business & capital expenditure go to http://www.hmrc.gov.uk/factsheets/expenses-allowances.pdf

Simplified expenses

Remember we mentioned earlier in this section that generally you can claim for anything you buy to run or use in your business, but you can’t claim for anything that’s not used in or by your business.

Where you buy or use something in your business that is used both privately and for business, you would have to work out the business part.

From the tax year 2013/14 onwards HMRC have introduced three simplified expenses schemes.

These simplified expense schemes use flat rates instead of actual costs to work out what you can claim.

The three simplified expenses schemes for the tax year 2013-14 onwards cover:

  • motoring costs
  • using your home for business

and

  • business premises that are also used as the family home

Using these schemes is optional. All unincorporated businesses, regardless of their level of business income can use them.

The simplified expense schemes will make it easier for you to claim these particular expenses where there is an element of both business and private use. It means you don’t have to do complicated calculations to work out what you can claim.

You will need to make sure you keep sufficient records to be able to make the flat rate calculations at the end of the tax year – for example a record of the number of business miles travelled, hours worked from home, or number of people living at the business premises.

We have other products to help you decide if simplified expenses are right for your business, and more detailed information about cash basis. They include:

Online presentations (webinars) – live or recorded. You can view these anywhere, anytime, on computer, tablet or mobile phone. Why not join in our webinar Simpler Income Tax – cash basis and simplified expenses. Find out how to access it here HM Revenue & Customs: Self-employed webinars

Videos – see HMRC’s three minute YouTube video Simpler Income Tax – Cash Basis and Simplified Expenses

GOV.UK website РSimpler Income Tax: simplified expenses 

Learning check

I’ve recently been to a trade fair and I wasn’t quite sure how much of the money I spent there can be claimed as a business expense.

Listen to my story and from the list on the following page, help me decide which items are business expenses.

Click on my image to play the video.

Summary

That completes this section on business expenses. Let’s review the key points:

  • You must be able to separate the money you have spent for business and private purposes, and only the business part is allowable. You must keep records to support this.
  • You cannot deduct any cost that is not a business expense, for example your own personal expenses.
  • Private expenditure is not allowable, you cannot get tax relief for it.

Courtesy of HM Revenue & Customs

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