It can be difficult to keep track of what business costs and expenses are eligible for tax relief, particularly when you're focussed on running the business and feel everything on you to do list is #1 priority.
Throughout their daily existence, all companies will accrue business costs and expenses that help it to operate. These are taken directly from the business account, or your personal account to be reimbursed later, and must be recorded efficiently to ensure that your Corporation Tax is accurate, and you don't end up paying additional tax.
Tax deductible expenses Before dividends are issued, you are must apply Corporation Tax on your profits. Tax deductible expenses minimise the profit that is liable for Corporation Tax. Therefore, more tax deductible expenses means lower taxable profit.
Understanding the eligibility of expenses to be deducted before tax is important to efficiently manage your companies finances.
How to record expenses Technology has simplified expense management. We are avid fans of using cloud accounting software to make the record keeping process easier and paper free.
Our main tool for expense recording is using Receipt Bank or Xero. Take a picture of your receipt / invoice, log the expense against pre-determined accounts, and reconcile within a digital accounting platform such as Xero.
Office, property and equipment
Business use of home A director of a Limited Company is entitled to £4 per week of insurance if your primary place of employment is your home without having to show HMRC the calculating method. If your personal spending is larger than £4, you would need to be able to show to an inspector of HMRC how you got to this computation.
Making an accurate and proportionate assessment of what is utilised for business purposes is required for the calculation to evaluate the cost of working from home. For instance, 25% of the total allowable expenditures may be claimed in a four-room house where one room is set aside for your place of employment.
Relevant expenses include gas, electricity and insurance. Mortgage payments and council tax payments cannot be claimed without paying extra tax. In order to qualify, a lease agreement between you and your company has to be arranged in order for the company to rent the office from you.
Computer equipment & electronics
For private & business use If the company gives you computer equipment that you can use for business and also more than an “insignificant” amount of private use, the company will have to pay extra National Insurance as this is considered a taxable benefit.
Private equipment brought into a company Computers, office chairs, etc. are tax deductible on its market value at the point of bringing it into the company, from your private ownership. If you continue to use this equipment privately, HMRC will consider this a taxable benefit.
Solely for business use If the company gives you computer equipment that you use only for business purposes and no more than an “insignificant” amount of private use, the cost of the equipment is a tax deductible expense. HMRC do not consider this to be a taxable benefit.
Second-hand equipment brought into a company Equipment purchased by the company is a tax deductible expense (as a capital asset) at the cost it bought it for. The equipment is new to the company, even if not in manufacture
Internet & Phone
Personal Phone If you are using a home or mobile phone for both business and personal calls then you cannot claim for line rental due to dual usage. Claims can be made for the business phone calls made on that line.
A second line can be set up in the company’s name for business purposes, and line rental claimed as an expense. Personal calls will be classed as a taxable benefit and you will be taxed accordingly.
Business Phone The company can provide you with a mobile phone for work use. Any personal calls would not need to be recorded as benefits.
Internet (Broadband) If you use your personal broadband account for business purposes, line rental cannot be claimed as an expense. A proportionate charge for business usage can be claimed however.
If the broadband account is set up under the company, the full cost of the line rental and business use is a tax deductible expense.
Accomodation, Meals & travel
Accommodation whilst travelling Accommodation whilst travelling on business related purposes can be claimed as an expense by the business, assuming the expense is reasonable and not excessive.
If you are staying in hotel accommodation during a period at a temporary workplace, you can claim this as an expense, on the basis that it is somewhere you expect to be working for less than 40% of your time for the next 24 months.
Hotel accommodation cannot be claimed personally if it is located close to your permanent workplace. If it is, you’ll need to pay tax and National Insurance on the repayment as it is will be considered a taxable benefit.
Meals (Food & Drink)
At your home or other company offices If you are the sole director and the company has no other employees, you wouldn’t be able to claim the cost of food and drink you buy to eat whilst at your usual workplace. If the company has other employees it can provide basic food and drink (tea, coffee, biscuits).
The company can provide free meals at a canteen without having to pay extra tax and National Insurance, as long as it is available to all employees.
While travelling You can claim back the cost of food and drink when travelling for business. The company can also include this in its accounts as tax deductible.
Flight, Train, Bus, Car Hire The company can reimburse expenses for business travel and claim these as tax deductible expenses.
The company cannot reimburse (without additional tax repercussions) for travel to the permanent workplace, and the same applies for temporary workplaces that are known to become permanent.
Mileage (Car / Van / Bicycle)
If you travel in your own vehicle for business purposes, the company can reimburse each business mile as per HMRC rates (up to 45p per mile). HMRC rates can be found here.
Salaries, Pensions and Childcare
Salaries A salary paid to you as an employee or as the director of your company is regarded as an allowable expense, as are any National Insurance contributions.
If you fall outside of IR35 legislation (company—client employment relationship), and have no contract of employment between yourself as the director and your company, you may choose the level of your salary.
When the company makes pension contributions to its own pension scheme it can claim tax relief on the cost of these contributions in its accounts.
There is no tax relief cap to how much you can contribute to pensions through your company.
The company can provide childcare vouchers to employees of the business. The cost of the vouchers is based on a salary sacrifice and is therefore deducted from the employee’s salary before taxation.
If the employee falls within the ‘Basic’ tax rate, the company can provide up to £243 per month in childcare vouchers. ‘Higher’ rate earners, up to £124 per month. ‘Additional’ tax rate earners may receive £110 per month.
The childcare voucher scheme can allocate payment through:
Direct agreement with a registered childcare provider. A letter between you and the provider confirming the amount must be present.
An official voucher scheme.
A child is eligible on the following conditions:
Is between 0 & 15 (15th birthday)
Is living with the employee
The employee is providing maintenance cost for the child
Health, Wellbeing and Medical Treatment
Eyesight tests and glasses Eye tests are tax deductible for companies when provided for those employees using visual display equipment (monitors etc.).
If glasses or contact lenses are provided for employees in order to use monitors and other screens, these are also eligible for tax relief.
Medical & Treatment
Personal Insurance Medical and dental insurance is tax deductible if the company arrange and pay the provider directly for treatment or insurance, and the employee earns at a rate of less than £8,500 a year.
‘At a rate’ being the nominal earnings, plus benefits, at the full year equivalent if worked less than.
Work Only Insurance Only treatment or insurance related to injuries or diseases that result from your employee’s work is exempt.
Return To Work Treatment Exempt up to £500 for costs of an employee returning to work, providing they have been absent for at least 28 days.
Periodic Medical Checks / Health Screening One check a year is tax deductible.
Entertainment, Events & Gifts
Entertainment and Client
Entertaining Clients Companies can’t claim tax relief for entertaining clients. The company can still cover the costs but this will be added back to its profits before Corporation Tax is applied.
Entertaining Employees Entertaining employees is in some situations tax deductible prior to Corporation Tax, but it could also be a taxable benefit to employees on which they have to pay additional tax.
In order for an event to meet HMRC’s ‘qualifying’ criteria (not a taxable event on employees):
It is an annual event (e.g. Christmas party)
It is open to all employees
It costs less than £150 per guest present
If one of these criteria is not met, the whole cost of the event becomes a taxable benefit.
Gifts to Employees Gifts to employees could constitute a taxable benefit to employees and subject to an increase in tax for the employee. HMRC has a list of items and their tax status here.
If the gift is small that celebrates a personal event, e.g. flowers for a recent marriage etc. then HMRC class this as a ‘trivial benefit’ and you can apply to not pay National Insurance or tax on that gift.
Gifts to Another Gifts to someone not an employee of the company are limited to £50 per recipient per year and are tax deductible. The gift must not be food, drink, alcohol, tobacco or vouchers and the gift must be marked with the company name.
Charity Donations Companies making Gift Aid donations to charity can usually claim tax relief on the cost of these.
For other charitable donations, it gets a bit more complex, speak to our accountants for more guidance here.
Legal, Financials & Professional
Speeding ticket fines and penalties Speeding tickets fines are not tax deductible
Legal fees incurred by the company are tax deductible, except in specific situations. As expected this is a highly complex area and it is recommended to get advice.
Accountancy Fees Accountancy fees are tax deductible against its full cost if it is spent on the company’s accounts and not your own personal accounts.
If they do provide advice or time working on your personal accounts this will be classed as a taxable benefit by HMRC.
The company can cover the cost of an individuals subscription to a professional body with no extra tax or National Insurance required to be paid. HMRC have listed the approved professional bodies here.
If the professional body is not listed above, the subscription is not tax deductible and will be classed as a taxable benefit to the employee.
The subscription payment must be made directly from the company to the professional body. If a personal expense is reimbursed it will be classed as part of your salary and you’ll have to pay PAYE (no National Insurance if it is a listed professional body by HMRC).
Training Training employees is tax deductible providing the training is ‘wholly and exclusively’ for the purpose of the company’s business.