This is probably the most common question that accountants get asked.
The maths are obvious. The more expenses claimed against income that your business can legitimately claim, the lower the taxable profit will be.
What can or cannot be claimed for will be dependent on individual circumstances. Claiming tax deductions can make a big difference to the taxable profits that your business makes. It is also useful to ensure you have claimed the correct expenses in case you are subject to investigation.
A review of some of the common expenes is shown below:
If you use a car for business, or your business owns a vehicle, you are able to claim for a proportion of the running costs of keeping it on the road. There are two main methods of claiming motor expenses:
Actual expenses incurred: Keep track of your actual business related expenses. Receipts need to be kept. An estimate of your private use will be required.
Mileage rate: This relates to claiming the HMRC allowable rate (currently 40p per mile up to 10,000 miles, 25p thereafter). Any business related parking costs can also be claimed. It is often recommended to keep a log of you business miles throughout the year.
Use of home as office
Where any element of the business is run from home a Use of home as office charge can be claimed. HMRC guidelines indicate a general claim of £2 per week can be made; however, where you are able to provide a reasonable calculation of home use you can claim more. It is therefore suggested that you keep hold of your home bills. You could also use PAH Accounting’s Use of home as office calculator to help with this.
This can also be useful even if you have your own premises, but do some work from home
Business startup costs
The start-up costs of a business can be claimed, up to six months before for some of the expenditure. Also, reclaiming the tax you may have paid whilst employed at the beginning of your business can help to fund your start-up costs.
Training expenses are an allowable expense where they are related to your current business.
Any prior costs incurred to qualify you to run your particular business are not tax allowable.
Legal and Professional Fees
Fees that are paid to accountants, solicitors or other professional advisers generally can be deducted in the year that they are incurred.
Legal fees relating to Company Incorporation are not allowable.
If someone fails to pay your business, this bad debt is deductible from profits. It does need to be shown as an expense in the accounts, rather than deducted from turnover.
This is often the biggest bone of contention amongst business owners. “If I don’t take potential clients out to lunch I won’t get the business!” Unfortunately this doesn’t make it allowable for tax. The only entertaining that is allowable is that of staff, up to set HMRC limits.
Some gifts, sponsorship and donations can be allowable dependent on circumstances.
Tax planning is an key area of your business. Reviewing tax liabilities of your business should start with professional advice. The tax regulations are complicated and difficult to interpret, even accountants struggle at times. Seeking professional advice can help to add to the long term sustainability of your business.