The separation between “allowable” and “non-allowable” expenses are complex For small business people. When running your own company, you will incur various running costs, expenses and allowances, and the separation of “allowable” and non-allowable” is important to understand. Generally speaking, you can deduct from your turnover all costs incurred for the purpose of generating business profits – allowable expenses. The rule being that expenditure must be incurred wholly, exclusively and necessarily in running your company. You can also claim capital allowances for certain other expenditure which is of a capital nature to reduce your taxable profits.
Some of the allowable expenses you can offset against corporation tax include:
- Pension contributions
- NICs payable on company Employees salaries
- Cost of subsistence whilst away from the workplace
- Phone and internet running costs
- Mobile and smartphone bills if the contact is in the company name
- Postage and printing costs
- Travel, parking costs and mileage allowance
- Business insurance
- Annual Return Fees
- Costs of advertising and marketing your business
- Professional fees such as Accountants and Solicitors fees
- Costs of training courses as long as the course is relevant to the business
- Home Usage Allowance
- Business gifts up to £50 per individual
- Bank charges and interest
- Certain professional subscriptions
- Eye tests for employees using computer equipment
- Company car expenses
- Loan and Hire Purchase interest if the loan is in the company name
- An annual private health check
- Staff entertaining (not clients)
- Bad Debts
This list is not exhaustive so please get in touch for a complete list. You should always ensure you keep all receipts and invoices in order to prove that any claims are legitimate. Also bear in mind that the above list is not exclusive to limited companies. If you operate your business as a sole trader or a partnership most of the items on the above list will apply to you also.
Capital expenses & allowances
The purchase of business equipment, furniture or motor vehicles cannot be counted as an expense. These items are deemed to be Capital in nature, dealt with by claiming capital allowances which can then be offset against taxable profits.
If you are purchasing business equipment (tools, computers, furniture, machines, etc.), the main Capital Allowance rate for businesses is currently 18% per year. However for the last few years the government have had in place a scheme called the annual investment allowance which allows companies to claim 100% of the cost of capital equipment incurred in the year against their taxable profits. Please note this does not apply to cars. Capital allowances on cars must be claimed using the 18% writing down allowance.
You should always consult an accountant if you need clarification on claiming business expenses. We at Millhouses Accountancy will be able to advise you not only on how this applies to your business, but also what the current view of HMRC is on particular issues.
For more information about our accountancy services, bookkeeping services or XERO services, call us on Sheffield 0114 345 0960 or Nottingham 0115 882 0356