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Expenses guide - getting started

What are expenses?

In order to run your business and generate income you may have to pay out on various costs.

Some of these costs can be deductible against your business income (and thus lessen your tax liabilities) and some cannot.

It's important to know what you can claim through the business and what you cannot.

Furthermore, in order to claim expenses you must have actually incurred the cost and it has been properly documented e.g. you have at least a receipt for the expense.

Expenses must have been wholly and exclusively incurred in the performance of your duties.

How are expenses paid?

There are two ways that expenses can be paid, directly from the company's account or by you, out of your own pocket.

If the expense has been paid by you, you are able to refund the cost back to yourself for the full amount of the expense. This is know as reimbursing expenses.

What are the type of expenses?

Travel Expenses

You can only claim expenses when you are moving between locations during work but not for journeys from your home address to your permanent place of work.

However, you should consider that usually your home is your permanent place of work and travelling to your client's address is allowable as it is to a temporary place of work.

However, your client's office will cease to be a temporary place of work after 24 month of continuous travel to it. This is known as the 24 month rule and will affect travel, parking, tolls and subsistence.

However, allowable expense can include train, air, taxi, parking and tolls. In fact any cost associated in getting you to the temporary place of work is allowance for tax purposes.

Food and meals

Generally, if travel expenses are allowable, subsistence will also be allowable when visiting the temporary work place.

Thus to claim subsistence (meals and drinks), you must be working away from your normal place of work, or be outside your normal working pattern.

Therefore, if your work dictates that you must stay overnight, all receipted meals can be claimed while you are away.

To claim meals while you are working at a temporary work place you must keep receipts.

Accommodation

The full cost of accommodation is allowable when incurred due to travelling for business purposes providing the cost is reasonable and not excessive.

Business Mileage

You can claim mileage when you use your own personal vehicle for business related matters.You will need to ensure you record the details of the mileage including purpose, from and to which location and the number of miles travelled.

HMRC provide tax free rates for claiming business miles. However, the rates are automatically calculated if you use our mobile phone app or web portal to record details of your journey.

Use of your home as an office

If you work from home you can claim a HMRC accepted "use of home allowance" of £4 per week. You do not need to keep receipts and this payment does not need to be declared on your P11D.

Conversely, if you feel you use more resources in your home, you can claim using an alternative method.

To do this, you must decide on what is genuinely being used due to working at home. For example, if you own a four roomed house (excluding kitchen and bathroom) and one of these rooms is used as your office then a quarter of these genuine costs will be allowable expenses.

However, to claim this higher allowance, you must ensure expenditure by the household is documented with the appropriate adjustment made for the allowable expenses.

Telephone & Internet

If you work from home then you should not claim for the line rental. This is because you have to pay this regardless whether you run the business from the home or not.

However, the cost of the calls made from your home can be claimed as an allowable expenses. Alternatively, you can claim the full cost of a separate dedicated business line.

With regards to the internet cost, you can claim a reasonable amount depending on how much is used by the business.

Accountancy Fees

You can claim the full cost of your accountancy fee, providing the time is spent working on the company and not personal tax matters. If you claim for personal accountancy costs through the company it would be deemed to be a benefit in kind.

Pre-incorporation costs

Any costs incurred due to setting up your company are allowable expenses and can be claimed back.

These costs can relate to company formation, accountancy, stationery, equipment and travel.

Training Costs

If the training relates to improving your current skills and can be applied to your work then you can claim the full cost of these. Additionally, any travel and other associated costs can be claimed also.

Equipment

Any equipment purchased that is needed in order to perform your work are fully allowable through the company.

However, if the equipment purchased has a dual use (e.g. business and personal) you will need to ensure that this is not significant. For example, furniture and computer equipment could have a dual purpose but are normally fully allowable against the company. However, the cost of a car, even if predominantly used for business, will have a benefit in kind attached to it.

Entertaining customers/suppliers

Business entertainment is not an allowable expense and will not reduce the company taxable profits.

Office & Stationery

Purchases for helping you run your business including stationery, computer consumables and postage are all fully allowable through the company as expenses.

Insurances

Generally, any insurances relating to the company are allowable. This might include office, professional and public liability insurance.

However, insurances relating to other forms of cover, including medical and life, can be allowable but will have benefit in kind issues which might outweigh the benefit of paying through the company.

Pension Costs

Pension payments made to your company pension scheme are 100% allowable for tax relief. Furthermore, there is no maximum amount that can be claimed.

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