Understanding Business Expenses

Another tax year is almost over.  Some of you may be completing your first tax return or need to brush up on your knowledge from completing your return last year.  A good starting point may be to review your paperwork and check if your outgoings are classed as a business expense or capital expense.  Below is a comprehensive list of the different types of expenses that are classed as ‘Business Expenses’ for self-assessment.

When reviewing your receipts and invoices, one thing to consider is if you have a bought a piece of equipment such as a van, car, computer etc for use in the business and the ‘useful life’ of that equipment is considered to be longer than 2 years and it is not included in the list of allowable business expenses then it may qualify for Capital Allowance.  For more information on Capital Allowances please follow the link:  http://www.hmrc.gov.uk/capital-allowances/basics.htm

If you are still stumped and not sure where to start please contact me for help.

Category

Allowable Expenses

Non-Allowable Expenses

Accountancy, legal and other professional fees.

Accountants, solicitors, surveyors, architects and other professional indemnity insurance premiums

Legal costs of buying a property and large items of equipment; costs of settling tax disputes and fines for breaking the law

Advertising and business entertainment costs.

Advertising in newspapers, directories etc.  Mailshots, free samples, website costs.

Entertaining clients, suppliers and customers; hospitality at events

Bank, credit card and other financial charges.

Bank, overdraft credit card charges; hire purchase interest and leasing payments.  Alternative finance payments

Repayment of the loans of overdrafts or finance arrangements

Car, Van and travel expenses

Car and an insurance, repairs, servicing, fuel, parking, hire charges, vehicle licence fees, AA/RAC membership; train, bus, air and taxi fares; hotel room costs and meals on overnight business trips.

Non-business motoring costs (private use proportions); fines, costs of buying vehicles, travel costs between home and business; other meals

Communication stationery and other office costs (mobile, internet, email costs).

Phone, mobile, internet, email and fax running costs; postage, stationery, printing and small office equipment costs; computer software.

Non-business or private use proportion of expenses; new phone, fax, computer hardware or other equipment costs.

Construction industry – payments to subcontractors.

Construction industry subcontractor payments (before taking off any tax)

Payments for non-business work.

Cost of goods that you are going to sell or use in providing a service.

Cost of goods bought for resale, cost of raw materials used, direct cost of producing goods.

Cost of goods or materials bought for private use; depreciation of equipment.

Depreciation and loss/profit on a sale of assets.

Depreciation and loss/profit on sale of assets are not allowable expenses – any amount entered here should also be shown in box 43 of the tax return

Depreciation of equipment, cars etc.  Losses on sales of assets (minus any profits on sales).

Insurance policy.

Cost of any business specific policy

Recoverable costs

Interest on bank and other business loans

Interest on bank and other business loans.  Alternative finance payments.

Repayment of the loans or overdrafts or finance arrangements

Irrecoverable debts written off

Amounts included in turnover but unpaid and written off because they will not be removed

Debts not included in turnover; debts relating to fixed assets, general bad debts.

Other business expenses

Trade or professional journals and subscriptions; other sundry business running expenses not included elsewhere

Payments to clubs, charities, political parties etc; non-business part of any expenses; cost of ordinary business clothing.

Rent, rates, power and insurance costs

Rent for business premises, business and water rates, light, heat , power, property insurance, security; use of home as office (business proportion only)

Costs of any non-business part of premises; cost of buying business premises.

Repairs and renewals for property and equipment.

Repairs and maintenance of business premises and equipment; renewals or small tools and items of equipment.

Repairs of non-business parts of the premises or equipment; costs of improving or altering premises and equipment.

Wages, salaries and other staff costs

Salaries, wages, bonuses, pensions, benefits for staff or employees; agency fees, subcontract labour costs; employers NICs etc

Own wages and drawings, pension payments or NICs; payments for non-business work.

NOTE – business expenses are only allowed in the accounting period to which they relate.  If the expense is spread over two accounting periods for example an electricity bill then you need to apportion the costs between the two periods.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>