It’s easy to assume that you can set off any costs and expenses you consider reasonable against your sales for the year.
HMRC may take a different view. You may only claim expenses that have been incurred “wholly, and exclusively” in the course of your business. So any expenses that have a joint personal and business use can’t be claimed except in particular situations.
Over the years some clients have told me they felt they were entitled to an expense which theoretically isn’t allowable.
There’s no point in trying to “prove” that your situation is the exception to the rule, unless:
- the expenses involved represent a sufficiently high cost to justify the effort
- your grounds for challenging the rule are reasonably convincing and
- you’re prepared to pay extra fees for your accountant to argue it out with HMRC
HMRC will do all it can to defeat your case, as if you were to win, every other taxpayer in the land would want to follow suit.
1.Wages of a spouse/friend/family member
Are these for work done for the business, and at a reasonable market rate, and can you justify the time paid for? Make sure you note what the work done for the business entails. If you can’t answer these questions satisfactorily for HMRC, they might insist later that the wages should be treated as your wages, costing you extra tax and NI.
2.Training course expenses
If they’re directly related to the work of your business, training courses are allowable. But you can’t claim for a course that is teaching you new stuff so you can diversify your business. You can claim for keeping yourself up to date with industry knowledge.
3.Your daily newspaper
You are allowed magazine and periodicals subscriptions, if related to your work. Your daily newspaper is not allowable as a business expense, because it could equally be a private expense.
4.Telephone, mobile and broadband expenses
These are only allowable if they’re in the name of your limited company, but you can claim for individual business calls if they’ve been made on a personal phone. You can’t just ask your home phone provider to bill the company instead of you if the item charged for is also a personal expense. Your home phone will always be a personal expense. You can claim back a reasonable percentage of broadband costs.
Your clothing costs can only be claimed if it’s for safety purposes or clearly shows the company name. A new suit on its own is no good. Company uniform clearly showing the company name is allowable.
6.Work done for you, friends or relatives via the business
Any private work must be invoiced to you or the beneficiary, with all costs covered and VAT added, if your company is registered for VAT. You must prepare the invoice without delay and the cost of the private work may need to be declared in your published accounts. The same is true of goods taken from the business for personal use.
7. Buying your car through the business
You, or the person using the car will be heavily taxed unless you can jump through lots of hoops to prove that the car is never used personally. Not many businesses have been able to do this in practice. And even if you think you can escape the higher taxes, you might have to fight it out in a tax tribunal, which is costly.
8.Use of your personal car for business purposes
You can only claim for business mileage at 45p per mile for the first 10,000 business miles per tax year, and 25p per business mile after that. These rates are supposed to cover you proportionately for service costs, insurance and all the other costs of owning a vehicle. So don’t put fuel bills through the business, as they won’t be allowable.
9. Working from home expenses
HMRC allows you to claim £4 a week for running a home office without detailed calculations. However if you spend lots of time working from home it would be worth claiming a percentage of your bills. This is not a simple calculation and you need a licence agreement in place. You must use data from your household bills and be able to show the calculation to HMRC if asked.
What to do now
If you know what’s allowable and what isn’t, if your business is inspected by HMRC, your data entry should show that you’re doing things properly.
Would you like some help working out what costs are allowable and which need to be reported on a P11D at the end of the tax year? HMRC will gladly fine you if they later find out you paid too little tax. Call me and I’ll help you understand the issues facing your company.
Frances Conn, Figureweave Accountancy Ltd Tel 01737 559211.