Claiming all small business expenses is critical to make sure your taxable profit is as low as possible. Here’s a handy list of the most commonly deducted purchases to help you decide what claims are allowable in your case.
What expenses can I claim through my small business?
Questionable expense claims are something revenue agencies face all over the world. The reason for this is that when you run a business, including sole traders and limited companies, you pay taxes on your profit which is calculated by subtracting expenses from your overall income. More costs result in lowering your taxable profit which reduces your tax liability. There are many profit leaks in a small business, and thus companies try to ensure all business expenses are recorded.
If you’re meticulous in recording all expenses, you can save yourself a considerable amount regarding both income tax and VAT (which you can reclaim by collecting VAT invoices for company purchases). But you can only claim allowable expenses, that is the ones spent for business purposes. Claiming expenses which aren’t incurred in relation to your business is equivalent to tax fraud.
Here’s a handy list of expense categories that you may want to claim running a small limited company or when you’re self-employed.
You can claim expenses on the mileage you accrue using your vehicle for business purposes.
In the UK you can add up all car-related small business expenses and then work out the share that results from the use of the car for your business. You may also use the flat rate-based allowance at 45p per mile travelled for business purposes for your first 10,000 miles and then 25p for each one after that.
The flat rate allowance also applies to employee travel expenses using their own vehicles.
Office equipment, including consumables like ink cartridges, are typical expenses for self-employed and other types of businesses. Similarly, you can claim purchasing laptops, desktop computers, displays, and accessories.
Rent and other bills
If you work at home, you can claim some of your bills, including rent. The amount is based on the space dedicated to actual business. You need to calculate how much of these bills are used when doing business and only claim that calculated share. To make it easier, you can use this simple calculator.
Working out the share of allowable expenses in the UK is described under the Simplified Expense Section at the www.gov.uk website.
Employee wages and other employee expenses
The money that you pay to your employees, including their National Insurance, is an allowable business expense. Other employee-related spending includes the flat rate for home-based workers (£4 per week), eye tests for employees who use computer equipment, or annual private health check. Interestingly, research shows that false expense claims from employees happen at one in five businesses on average, so employers need to make sure only allowable expenses are included.
Training course fees, books, and industry magazines
All purchases related to education, be it courses, books, or magazines, are allowable expenses as long as they are related to what your company does. For example, for a self-employed programmer, a Udemy course in the field of IT and Software is an allowable expense.
There are many types of insurance policies related to your business that you can claim against your tax. For example, all businesses can claim General Liability Insurance policies, given that they protect against injuries or property damage related to the company premises, operations, products, or services. Here’s a list of types of insurance small business owners ought to consider.
Advertising and marketing
You can claim all expenses related to building and maintaining a website, print ads, digital ads, email campaigns, or free samples. Membership fees at professional organisations are allowable when they’re related to your business. However, bear in mind that you can’t make any claims on entertaining your existing or potential clients.
Be wary of dual-purpose expenses
Expenses for items or services that have a dual purpose (for both personal and business use), cannot be claimed if it is not possible to calculate what portion of the expense is business-related. Similarly, you cannot’t deduct private purchases made with funds belonging to your business.
Keep track of your receipts and invoices
When you claim small business expenses, you need to keep a record of these expenditures and other tax-related documents. You have to to collect all receipts, invoices, and other papers documenting sales and purchases.
You don’t have to store paper copies of expense documents in most cases. Once you snap a photo of a receipt or an invoice, you can save the file in the cloud, for example using your arbitrue account, and get rid of the paper version.
Self-employed people must keep records of their receipts (either paper or digital) and other tax related documents for 5 years after the 31 January submission deadline. For limited companies, that period is 6 years from the end of the company financial year. This is necessary in case of a tax compliance check conducted by the HMRC.