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Revenue enhancement-deductible expenses for limited companies

Updated 24 March 2022

4min read

As HMRC volition tell you lot, it'southward important for your limited company to pay the right corporeality of tax. But that dominion cuts both ways – your company shouldn't exist paying tax on things that are legitimate business expenses.

If your company needs to spend money on something in order to run properly, then this may count as a tax-deductible expense. These expenses can lower your overall corporation revenue enhancement beak, and indeed can be a vital part of both greenbacks-flow planning and improving your operating margins.

Taking reward of tax-deductible expenses requires constructive bookkeeping and financial reporting, as well as a good knowledge of the expenses that qualify.

What are tax-deductible expenses?

Businesses often accept to spend a lot of money earlier they can make money. For instance, if you run a commitment company that requires a armada of vehicles, you'll demand to buy these vehicles, fuel them and keep them roadworthy – all of which will price money. As your business couldn't run without these vehicles, the coin you lot spend on them isn't taxed. Those costs are therefore deducted from the business's gross income earlier that is subject to taxation.

So if the business took £320,000 in the terminal year, just had £vi,000 worth of tax-deductible expenses, only £314,000 would be taxed.

What allowable business organization expenses tin I claim?

A great many expenses are potentially tax-deductible, depending on the nature of your concern and its ongoing requirements. Here are some of the mutual ones:

office costs (e.one thousand. phone and broadband bills)
travel costs for work travel (eastward.grand. petrol, transport fares)
clothing expenses for uniforms or protective outfits
salaries and subcontractor costs
stock and/or raw materials for resale
financial costs such equally banking concern or insurance charges
heating and lighting your business concern premises
hire on business premises and business rates
advertizement and marketing costs

All such expenditure must be made solely for business purposes rather than personal employ (although sometimes the line is blurred, such as when you piece of work from home and claim for energy bills). Expenses must also be rigorously documented if you desire to claim back tax on them, so encourage this do among your staff and ensure all receipts are kept and sent to your accountant.

A few business costs are non tax deductible. These include any legal costs that come up from breaking the police (including parking tickets), and you besides tin't claim on the legal costs that come with ownership a new property. And although piece of work-related travel costs are covered, travel betwixt your home and your workplace is non. Finally, despite what you may take heard, entertainment costs such every bit taking clients for dinner are also not taxation deductible!

How should I treat employee expenses?

Some employee expenses are claimable every bit business expenses. Your employees may incur certain personal expenses during the grade of their piece of work (such as buying dejeuner when out on assignment, or travelling to encounter a client). When this happens, you can reimburse each employee through payroll.

Many of these expenses will in plough count every bit allowable concern expenses. Make sure your employees e'er keep their receipts when challenge for expenses, so that you in turn can claim confronting those that are tax-deductible.

Tin I merits the cost of buying assets as a business expense?

Buying assets (known every bit 'uppercase avails') is treated differently from business expenses. Majuscule assets are things that y'all volition keep and use in the business, such every bit some vehicles (excluding cars), plant and machinery. You can claim uppercase allowances against the cost of buying these.

The Annual Investment Assart (AIA) allows businesses to spend up to £ane million a yr on new assets and and then deduct that cost from their taxable profits. There is also a 100 per cent commencement-yr assart that permit you claim back tax on an nugget in the year you purchase it.

What are the disallowable, non-tax-deductible expenses?

There are some business expenses that are ordinarily idea of equally beingness tax-deductible, which in fact are non. Make sure you lot don't mistakenly effort to claim confronting the following (this is not an exhaustive listing):

1. Income paid as dividends

Although salary paid by the visitor is a revenue enhancement-deductible expense, dividend payouts (which may form the majority of your income equally manager) are not.

2. Entertaining clients

A lot of people get this one wrong. The toll of wining and dining clients is not an allowable expense. Entertaining employees, however, is.

iii. Gifts to clients

Over again, it's a pop conventionalities, merely wrong. Simply gifts worth nether £50 tin can count, and these cannot be food, drink, tobacco or annihilation that carries an advertising for your business.

four. About legal fees

Generally the but deductible legal fees are those incurred past obtaining loans and patents and registering trademarks.

5. Fines

Since incurring fines isn't necessary when doing business, you tin't merits them against tax.

half dozen. Donations non made via Gift Assist

You need to remember to Gift Aid all charitable donations. Anything not qualifying for Gift Aid is therefore not taxation-deductible.

7. Asset depreciation or improvements

Upper-case letter assets will usually decrease in value over time, but y'all tin can't claim this as an expense. Yous also can't merits against making improvements (e.g. renovations) to them. You lot tin, however, merits for necessary repairs such as fixing utilities.

How practice I merits my tax-deductible expenses?

In one case you have all purchase records for the yr and can prove how much yous have spent on your business, it's time to make the merits. You lot exercise this through your annual self-assessment tax render. You won't need to submit your records when you submit your taxation render, but you should keep them ready every bit HMRC may ask to see them.

If you take more than than a few business expenses to keep track of, information technology's usually more efficient to have an accountant to have care of your bookkeeping.

If you're simply self-employed (e.1000. a freelancer or sole trader) the expenses you can claim may be slightly different from those of a limited visitor. Observe out out commanded expenses for the cocky-employed.

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