Claiming business expenses and understanding what you can and can’t deduct from your profit for tax purposes is confusing.
The rules relating to claiming business expenses are strict. Always consult an accountant if you’re unclear and take advice on how the law applies to you and your business.
It’s essential that you keep accurate records of all your expense-related receipts and documents. You must be able to back up all the claims you make when calculating both business and personal tax records each year.
In general, all costs incurred for the purpose of generating business profits can be deducted from your tax liability. That includes cleaning costs, utilities, business insurance, postage, office rental and so on.
That said, the purchase of business equipment or premises cannot be counted as an expense. Capital allowances are claimed on these items, which can then be offset against profits.
If you employ staff you can claim various salaries and benefits such as wages and redundancy payments, childcare provision and training.
If you have dedicated business premises you can claim for heating, lighting, cleaning, water rates, rent, business rates, small business insurance and general maintenance.
Many small businesses can also claim expenses which are dual purpose. This is when part of the expense can be claimed against the business – a proportion of your phone bill, for example, if you use it for both business and personal calls.
So, if you work from home, you could claim a proportion of your costs for lighting, heating, cleaning, insurance, mortgage interest, council tax and general maintenance. The proportion should be based on the floor area or number of rooms used for business, and the amount of time it’s actually used for work if it’s used for other things too.
If you use a car or other vehicle for work then you can claim for running costs like petrol, car tax, insurance, repairs and servicing. If you also use the car privately, then you can only claim a proportion. This is usually based on the ratio of your business miles to your total miles.
You can also claim travel and accommodation on business trips.
When it comes down to it, what you can claim for will depend on the kind of business you run – lipstick might be a legitimate expense for a model, but not a builder!
If in any doubt please contact Sleigh & Story at 01484 723783.
