One of the first questions we are asked by new customers is “what business expenses can we claim for?”.
HMRC guidance states that in order for spend to be deductible for tax purposes, the expense must be ‘revenue in nature’ (i.e. consumable running costs, not ‘capital’) and ‘incurred wholly and exclusively for the purposes of the trade’.
In other words – if you have an expense that is required for the running of the business and is not classed as an asset then you can deduct it from your sales and reduce your tax bill.
The main, and probably obvious, expenses are:
- stock or materials
- office rent
- telephone costs
- staff and so on
Motor expenses can also be claimed, however if you own a car you can choose which way to claim the cost against your profit.
One way is to claim a mileage allowance. For this you need to:
- Log your business mileage with details on the date, destination, round trip distance.
- Total the mileage annually
- Claim a deduction of 45p/mile for the first 10,000 miles and 25p/mile thereafter.
- You can’t then reclaim the cost of purchasing the vehicle, it’s repair costs, tax etc.
Or you can claim the cost of the running costs of the vehicle (specifically car). For this you need to:
- Keep all receipts that relate to the running costs of the vehicle – fuel, tax, repairs, MOT etc.
- Keep the purchase invoice of the vehicle
- At your year end calculate a private usage element
- Total all of the running costs of the vehicle and deduct your private usage element percentage
- Depending on the percentage of CO2 emissions claim the appropriate capital allowance deduction of the vehicle and take out the private usage element.
Still with us?!
Right here’s another. If you work at home, or dedicate some home space to your business, you can claim an allowance for using your home as an office.
Use of home as office
HMRC will allow £4 per week as a deduction without any receipts, that’s £208 per year.
However, if you use a significant part of your property and/or spend a lot of time working on your business (as we did before we moved to our office) then you’re entitled to claim more.
You can claim a percentage of your household costs (mortgage interest, rates, council tax, heat & light) based on the area size that your business takes in your property and also how long your business uses that space.
So if you have 6 rooms in your house, you use 1 of those rooms and your running costs are £6,000. You could claim up to £1,000 per year as a deduction. This would depend on how long that room was used solely for the business. If it was only half the time, then £500 would be allowable.
In a claim for use of home as office, HMRC will always look to ensure the claim is reasonable and can be backed up. Ensure you make detailed notes of your calculation, and in fact all your books, in case of enquiry further down the line.
If you have any questions on anything here, want to know more or how our accountants can help you save tax give us a call today and book your coffee and cake meeting with us at our office in Chorley.