What expenses can I put through my business?
When it comes to what you ‘can and can’t’ claim as a business expense, it can sometimes feel like a “how long is a piece of string” conversation. Understanding what is claimable and what isn’t a business expense is important to protect the business and run it in the most tax efficient way as possible to maximise your returns.
Last thing you want though is to make mistakes in your claims, which can lead you into sticky water with HMRC resulting in extra expenses and headaches instead of benefits. Below we will clarify what can and can’t be expensed through an Ltd company.
The rule of thumb is to always remember 3 key words – Wholly, Exclusively, and necessarily
Business expenses should be wholly, exclusively, and necessarily for the purpose of the business, or the other way to put it is that unless the expense is only deemed ‘claimable’ if it is wholly, exclusively and necessarily for the purpose of the business.
For example, if you are on a weeklong trip, and only two days (e.g Monday & Tuesday), out of the 5 working days will be spent in ‘business related’ activities, such as meetings, and you spend the remaining days in leisure, then except for the two working days, the rest of the trip would be deemed as a ‘personal expense’ and not a ‘business expense’. Alternatively, if you were to reverse that and have meetings Monday through Friday, and spend the weekend enjoying the sun then it would be classed as a claimable business expense.
Other examples of expenses, that would fit these 3 key words would be business insurance or even accountancy fees (all of which is directly linked to the business!).
Below is a list of some of the things that are seen as acceptable expenses
- Office Costs
- Professional Fees
- Business Travel
- Professional Subscriptions
- Marketing
- Lunch Meals
- Staff entertainment
- Equipment
- Use of home as an office
- Client Entertainment
Expenses that have a grey area
- Clothing
- Travel
- Use of home as an office
- Client entertainment
As mentioned, before filing a claim, it is essential you make a decision to claim, ONLY if you believe you can convince HMRC that the expense is directly related to business, but if you’re unsure then don’t take the risk.
What do I require to file a claim?
Remember to keep all receipts for any expenses that you incur doing ‘business’, although your accountant may not always need or ask for it you have an obligation to keep all receipts for up to 6 years.
You should also diligently maintain a record of all business related activities you do, such as;
- Bank Statements
- Details of any business assets purchased or sold
- Wages record
- Hire, purchasing or leasing documents
Claiming expenses incorrectly can have consequences.
Claiming little things here and there might not seem like a big deal but filing an incorrect claim or return can land you in murky waters with HMRC and cause you potentially bigger loss then benefit.
It is vital to have an audit trail of all your expenses and finances and have everything saved in case you ever need to call upon it.
Having a better understanding of what you can and can’t claim as a business expense is really important to be able to run your company in the most tax efficient way.
In some instances, it’s not always about saving tax, you might have a need or requirement to show more through the company for things such as mortgage purposes or even visa purposes. It’s always important to speak to your accountant and discuss you short term/long terms plans so the best advice can be given to you.
