Most owners and managers of small businesses are aware that if you run a business you can claim expenses on most of your business costs.
When you pay tax on your profits, you claim expenses, so that amount is removed and you pay tax on a lower amount. The amount saved can be considerable and it is worth making sure that you have claimed all that is legitimately allowed by HMRC, who list just about everything that can qualify as an allowable business expense. The expense claiming process is not too demanding and if you are unsure about claiming for any particular expense, information and advice from your accountant or from HMRC information sources, will answer most queries.
One obvious business expense allowance area is business travel. For example, when using a car for business purposes you can claim for the mileage. If you’re going by car or van you can claim 45p a mile for your first 10,000 miles and then 25p for each one after that. If you’re going by motorcycle it’s 24p a mile no matter how many you go. If you’re more environmentally inclined, you can actually claim for bike travel too – at a rate of 20p a mile. Do you think Boris Johnson claims for his Mayor of London duty mileage?
You can claim for things like office equipment and consumables – hardware or software that you purchase and the materials you use like paper and printer inks, things that are essential to the running of your business. If you run a limited company and you have a laptop, you can purchase it off yourself through the company. This will make it a company asset and its cost is a claimable expense. On top of that, you’ll get money straight from the company personally tax free.
If you happen to work from home, you can claim on rent, mortgage and bills by charging some of the costs through your company, although there are limitations. HMRC guidance is available on these.
The amount of rent you can claim is based on the space dedicated to actual business. For example, if you have a room as an office that you use only for business purposes, which takes up 10% of the square footage of your home, you could claim 10% of your outgoings such as rent and energy costs, as expenses. If you work in a room for half the time and use it as a normal room the other half of the time, you’re likely only to be able to claim 5% of the rent back.
Energy and phone bills etc, work in a similar way and need to be divided between those used when doing business and when not. This can be a bit more complicated to work out, and separating business from home where possible is helpful, for example, having a dedicated internet and phone business account may make claiming a business expense simpler.
Capital allowances include things like machinery, gifts of equipment to charity and business fixtures and fittings. You can’t claim for the ongoing running and use of some of these things and so instead you must claim for the one-off purchase or gift payment. For larger capital expenditure items, claiming on these as business expenses might need to be spread over several tax years. HMRC has formulae for such claims.
If you do want to claim, obviously you’re going to need proof of the expenditure. Retain all your invoices, receipts and papers, keep them in good order and store them somewhere safe to save time when evidencing your expense claims or defending a claim. HMRC can come back and request proof of expenses up to six years after they’re claimed, so keeping organised expense records is a must. If you’re unable to give proof when asked by HMRC later on, you could have to pay the money back!