Archive for the 'Business Expenses' Category

Incidental Overnight Expenses

Employees who stay away from home may incur incidental expenditure which under normal circumstances would not be available for tax relief.

Employers can pay tax free amounts of up to £5 a night for overnight stays away from home in the UK and up to £10 per night for overseas overnight stays.  This tax free amount is to cover the cost of laundry, telephone calls home, buying newspapers etc..  If the employer pays more than this limit then the whole amount becomes taxable on the employee.  It is important to ensure that the payments are for genuine trips in connection with employment and if the payment is made not for the purposes of covering incidental costs then the payment will not be exempt.

The employer can deduct the reimbursement as an expense thus saving tax on costs.

Cover the cost of laundry etc when you are working away.

This article was taken from our Pay Less Tax brochure – Summer 2012.

What You Can Claim As Business Expenses main page.

What You Can Claim As Business Expenses – Use Of Home As Office

The same rules apply for soletraders, partnerships and Limited Companies.

If you use any part of your house to run your business from you can charge the business for the personal cost of making that space usable and secure.  There are no specific calculations set out by HM Revenue and Customs for this, so it’s a matter of applying a formula that makes sense to you and that does charge the business a disproportionally high amount.

Most people might have a desk/office space set up in a room that is also used for domestic purposes, e.g. a dining room, or have a small room set up as a full time office.  The Revenue would not question a charge of £2 – £3 per week going through the business accounts to cover the costs of this.

If you think that you should be charging your business a higher amount than this, then you need to justify this by putting together a quick calculation to back up your claim.  The simplest way of approaching this is to add up how much the utility bills for your house cost you in a year. i.e. include council tax, house insurance, gas and electricity bills.  Then divide by the number of rooms you have in your house; this will give you a best guess at the cost of running a room.  If you have a dedicated office then claim this amount; if you use a room for business purposes during the day, but then for domestic purposes during the evening/weekend then maybe claim half this amount.

You can also claim for the cost of redecorating your office space at home, or any other expense incurred in keeping this room usable. 

You may be told that you can also claim a proportion for any external work that you have done to your house, or that you can include your mortgage interest payments with your utility charges in the calculation mentioned above.  Whilst this is in fact correct, by doing this you do run the risk of treating your house a partly business premises for several years.  If there comes a time when you want to move house it is quite possible that the Revenue will then expect you to pay capital gains tax on any profit you make on the proportion that you have treated as business premises.  In short you can’t have it both ways.  By all means claim these capital items as they occur if you wish, but be prepared possible consequences.

What You Can Claim As Business Expenses main page.

What You Can Claim As Business Expenses – Travel

The same rules apply for soletraders, partnerships and Limited Companies

You can claim back any train/tube/tram/bus/taxi fares, parking expenses, tolls etc that you incur for any business meetings away from your normal place of work. 

When it comes to overnight stays and trips abroad, again you can claim for all expenses, e.g. train/air/taxi fares and accommodation costs so long as the trip “wholly and exclusively for business purposes”.  People fall into the trap of thinking that it would be a good idea to tag a few days holiday on the end, or to take their spouse/partner, but in the eyes of the Revenue this immediately gives a trip dual purpose and, strictly speaking, none of the expense is allowable against profits.

If you have to stay overnight on a business trip you can claim the cost of an evening meal and your breakfast.

VAT can be claimed on any travel expenses where VAT receipts are obtained.

What You Can Claim As Business Expenses main page.

What You Can Claim As Business Expenses – Entertaining

The same rules apply for soletraders, partnerships and Limited Companies.

 You can entertain your clients and woo potential clients to your heart’s content, but the expense is not allowable against profits and any such expense that your business incurs during a financial year are adjusted for on the final tax calculation.  This may seem unfair – you could claim all such expenses back at one time, but people started to get silly ( taking clients to expensive football/golfing matches for example) so the Revenue responded by disallowing everything.

VAT considerations: you cannot claim the VAT back on client entertaining either.

 Entertaining you staff is a different matter.   Anything you spend on your staff to give them a Christmas party, or an annual business birthday party etc is claimable against profits and all VAT can be claimed back.  People are usually advised to keep such expenditure to below £150 per head per annum, as this causes benefit-in-kind’ issues.

What You Can Claim As Business Expenses main page.

What You Can Claim As Business Expenses – Clothing

Can these fine gentlemen claim for the suits they are wearing?

The rules here are the same for soletraders, partnerships and Limited Companies.

The rule “wholly and exclusively for business purposes” applies here.  You cannot claim for regular clothing here, even if you have to buy smart suits etc that you would not buy if you did not need to look the part for work.  The Revenue take it, that because you also need the clothing for social reasons, e.g. keeping ‘decent’ and warm, the clothing has a dual purpose and is not wholly and exclusively for work.

You can however, claim for some things:

Protective clothing; examples here are steel-toe capped boots, safety helmets, overalls.

Uniforms; if you buy uniforms for your staff you can claim the cost.

Stage wear; if you are an actor, or work in the performing arts, you can claim for some things, such as stage make up, costumes etc, though you need to be careful that you don’t start claiming for items that strictly speaking have a dual purpose.

What You Can Claim As Business Expenses main page.

What You Can Claim As Business Expenses – Land Line Phones

 
 

Read below to learn why?

Self-Employed and Partnerships

  1. If you work from home and use your home phone for business use, then you are allowed to claim the proportion of the calls that are made on behalf of the business.  You cannot claim any of the line rental as it is deemed by HM Revenue and Customs that this would be a cost incurred by you even if you were not in business, and therefore, is not “wholly and exclusively for business purposes”.   VAT considerations: you can claim back the VAT on the proportion of the phone bill that is for business calls.
  2. If you have a dedicated business phone line installed, either at home or at separate premises, then your business can claim for the whole of the bill, and claim all of the VAT back.

Limited Companies

  1. If you work from home and use your home phone for business use, then you are allowed to claim the proportion of the calls that are made on behalf of the business.  You cannot claim any of the line rental as it is deemed by HM Revenue and Customs that this would be a cost incurred by you even if you were not in business, and therefore, is not “wholly and exclusively for business purposes”.  VAT considerations: you cannot claim back any of the VAT as the bill will be made out to you personally and not the Limited Company.
  2. If you have a dedicated business phone line installed, either at home or at separate premises, then your business can claim for the whole of the bill, and claim all of the VAT back, as the bill will be made out to the company.

What You Can Claim As Business Expenses main page.

What You Can Claim As Business Expenses – Mobile Phones

 
 

Mobile phone expenses - Just what is tax allowable?

Self-Employed and Partnerships

If you use your own mobile phone for both business and personal calls then you can claim for the proportion of the costs that relate to business calls.  The easiest way to put this into practice is to pay for the whole of the bill through your business, but keep a record of calls so that you can work out a percentage to add back as personal use at the end of the year.

VAT considerations:  Strictly speaking you should only claim back the VAT on the business element of your phone bill.

Limited Companies

  1. If your mobile phone contract is in your personal name (or anything other than the Limited company) then the company should not pay for your bill.  You should put an expense claim in to the company periodically for the business calls you make on your own phone.
  2. If the mobile phone contract is in the name of the company then the company can pay the whole bill and claim the full VAT (even if there are private calls)….

What You Can Claim As Business Expenses main page.

What You Can Claim As Business Expenses – Motor Expenses

 
 

If claimable motor expenses are a mystery to you, then read on...

Self-Employed and Partnerships

You have 2 options on how your business covers the cost of you using your own car, and both require you to record business mileage throughout your financial year:

  1. You keep the car out of the business, and claim periodically from the business for the mileage you do on its behalf.  The mount you are able to claim per mile is 45p** for the 1st 10,000 miles in a financial year, and 25p per mile thereafter.  This amount of 45p**/25p is deemed to cover fuel and wear and tear on the car.  The whole amount claimed in mileage each year is allowable against profits. If you do not work from home you cannot claim for the miles done to/from your home from/to work place.  VAT considerations: If you are VAT registered you can claim back some of the VAT – speak to us for further details.
  2. You can bring your vehicle into the business so that it is treated as a business asset.  You are then able to claim tax relief on this asset called ‘capital allowance’ at a set rate each year.  You can then put through the business all of the running expenses for the car for the year, i.e. fuel, repairs, road tax and insurance.
    At the end of the financial year you work out the ratio of your business mileage to your private mileage and add back the percentage equal to your private mileage on both the capital allowance and the running costs for the year.  These are adjustments that your accountant is most likely to make on your business tax calculation rather than in your accounts.   VAT considerations: You need to bear in mind that if you choose this option and you are VAT registered, and therefore claim back VAT on fuel and motor repairs, that you are required to add back fuel scale charges on your VAT returns each VAT period to account for personal use.  Click here to see the table of current VAT scale charges.

Limited Companies

You have 2 options on how your business covers the cost of using a motor car.

  1. You keep the car out of the business in your own name, and claim periodically from the business for the mileage you do on its behalf.  The mount you are able to claim per mile is 45p** for the 1st 10,000 miles in a financial year, and 25p per mile thereafter.  This amount of 45p**/25p is deemed to cover fuel and wear and tear on the car.  The whole amount claimed in mileage each year is allowable against profits.  If you do not work from home you cannot claim for the miles done to/from your home from/to work place.  VAT considerations: If you are VAT registered you can claim back some of the VAT – speak to us for further details. 
  2. The company owns the car and you run it as a company car.  The company then meets the cost of all running expenses for that car and claims back capital allowances each year, without having to add anything back for personal use in the tax calculations. 
    This sounds like a great option, but unfortunately this perk (or benefit-in-kind) is given a value (based on the list price and CO2 emissions of the car and often amounting to several thousand pounds).  This value is deemed to be part of your remuneration package and each year you have to pay personal tax and national insurance on the value, and the company has to pay Employer’s national insurance.  This usually proves to be an expensive way to run a car because of the tax liabilities it incurs.

**Update 22 April 2011
N.B.  With effect from 6 April 2011 the rate increased from 40p per mile to 45p per mile for the 1st 10,000 miles of business travel during the tax year.  The rate for mileage beyond 10,000 miles will remain at 25p. 

What You Can Claim As Business Expenses main page.

What You Can Claim as Business Expenses

HMRC’s stance on this is that you can claim any expense back against profits so long as it is “wholly and exclusively for business purposes”.  This sounds obvious and straight forward enough until you start to trade and you soon realise that there are quite a number of grey areas, especially for self-employed people.  The main areas requiring some clarification are as follows:

Motor Expenses

Mobile Phones

Land Line Phones

Clothing

Entertaining

Travel

Use of Home

Incidental Overnight Expenses

If you would like to see other categories added to this page please let us know.




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