Businesses must keep records of every expense, no matter how big or small. This includes things like travel costs, office supplies, IT equipment, marketing activities, training courses, etc. Keeping good records helps you to prove what you spent money on, and it’s important to do so because there are many ways to claim tax back on some of your outgoings. Here are six common examples:
1. Travel costs
If you use public transport to go into work each day, you could claim back the cost of your journey under the car mileage allowance. You can also claim back the cost of parking charges, tolls, petrol and diesel, and even train tickets. If you use taxis, you could claim back half of the fare, depending on where you live.
2. Office supplies
You can usually claim back the cost of stationery used for work purposes, such as paper, pens, pencils, sticky notes, etc. However, you cannot claim back the cost of photocopying unless you make enough copies yourself to justify doing so.
3. Marketing activities
If you spend money advertising your business online, you could claim back a percentage of the total amount you paid. For example, if you pay £100 to advertise your business online, you might be able to reclaim 25% of the total cost – £25.
1. Home office expenses
Small businesses can claim a tax deductible expense of £4 per week. This includes rent, rates, insurance and maintenance costs. If you run a limited company, directors must keep detailed records of every expense incurred in running the business. They include things like phone bills, photocopying, stationery, postage etc. A director can deduct the cost of items bought for use in the home office against profits. However, there is no allowance for depreciation.
Home Office Allowances
If you work from home, it might seem odd that you don’t receive a salary. But there are actually allowances available for both sole traders (who operate out of one room) and limited companies (which employ several people). These allowances are paid directly into your bank account each month. You can claim up to £10,000 per annum for a single person and £20,000 for a couple. There is also a catch-up provision allowing you to claim additional amounts if you haven’t been receiving payments for three months.
2. Telephone expenses
Telephone expenses include long distance charges, toll calls, directory assistance, and operator assisted calls. You must keep records showing how you spent money related to telephone services. If you use your home phone primarily for personal reasons, you cannot deduct those costs.
If you use both your cell phone and landline for work, it is possible to claim the cost of the landline as a deduction. However, if you do not use the landline for business purposes, you cannot deduct the cost of the landlines.
You can deduct the following types of charges on your tax return:
Long Distance Charges – These include long distance charges incurred while calling someone else’s number.
Toll Calls – These include toll charges incurred while making a call over the Internet or through a wireless network.
Directory Assistance – This includes charges incurred while placing a call to obtain information about businesses or people.
Operator Assisted Calls – These include calls placed to operators to make changes to your account.
3. Plant and machinery costs
Small businesses can claim deductions for plant and machinery costs. This includes things like buying office furniture, computers, printers, scanners, photocopiers, fax machines, phones, etc. If you are running a small business, it might seem like a good idea to deduct some of these expenses from your taxable income. But there are a few problems with claiming deductions for plant and machinery. Firstly, you cannot take deductions for items bought before April 2017. Secondly, you must prove that the item was used exclusively for commercial purposes. Thirdly, you cannot claim deductions for items costing less than £500. Finally, you must pay VAT on the purchase price.
If you want to claim deductions for plant and machine purchases, you must do one of three things:
1. Buy the item(s) in bulk and sell them on at a profit.
2. Use the item(s) for personal use.
3. Claim depreciation.
4. Make a loss.
5. Pay the tax due.
4. Travel, Subsistence and IOEs
Small businesses can claim deductions for most business related travel expenses. These include flights, hotels, car rental, meals, entertainment, etc. If you are doing something like attending a conference, it might be worth claiming the cost of accommodation, food and transport. You don’t necessarily need to work during the trip to qualify for the deduction.
There are different rules for different types of business travel. Some require you to keep records, others do not. If you are flying to another city, you must take into account whether your flight is connecting or non-connecting. If you are driving, make sure you use the correct vehicle type. If you are taking public transport, check what class ticket you need.
If you are staying at someone else’s house, you can deduct the rent, electricity bills and water bill. However, you cannot claim for the cost of cleaning or maintenance unless you paid for those things yourself.
You can also claim for incidental overnight expenses incurred whilst away from home in the United Kingdom. This includes things such as laundry, telephone calls, postage stamps, newspapers, books, magazines, internet access, etc.
The total amount of allowable deductions depends on how much you spend each month. In 2018/19, the standard deduction is £8,087. So if you spent less than £8,087 in one month, you won’t benefit from any deductions. But if you spent over £8,087, you can claim up to £1,000.
For example, let’s say you had a monthly salary of £3,500 and spent £2,800 on business trips. You would have deducted £300 for incidental overnight expenses, making a net loss of £200.
However, if you spent just £400 on business trips, you would still have claimed £100 for incidental overnight expenses, giving you a net profit of £300.
5. Business Mileage expenses
Businesses are allowed to deduct the costs of running their cars, vans and bikes. There is no limit on how much you can claim each year. However, businesses must keep records showing what they spent on petrol and wear and tear. If you do not keep such records, you cannot claim. You can deduct the cost of running your vehicle if it is used exclusively for work purposes. This includes trips to clients’ premises and meetings with suppliers.
You can claim up to £315 per annum for the cost of driving your own car, van or bike for business purposes. If you use a bicycle, there are no deductions for the cost of petrol.
The amount you can claim depends on whether you are self employed or working for someone else. Self employed people can claim the full amount, while employees can claim half of the amount.
If you run a taxi firm, you can claim the full amount for the cost of running your taxis.
6. Business magazines, business journals, and business books
A recent survey found that many businesses are unaware of how much they could save on taxes by claiming expenses against their profits. In fact, it has been reported that some companies are spending hundreds of pounds on magazines and business books every year without even realising it. A report published by HM Revenue & Customs revealed that over half of SMEs do not realise that they could be entitled to claim tax relief for business books, magazines, journals and newspapers.
According to the research, the average SME spends nearly £1,200 per annum on such items. This equates to approximately £80 per week for a business owner based in London. However, there are many ways in which this money could be saved.
In addition to the obvious benefits of increased knowledge and awareness, businesses could benefit from significant savings on VAT, corporation tax and national insurance contributions.
Frequently Asked Questions
Can you deduct job expenses?
As of 2018, job expenses — including those related to moving or relocating — are no longer deductible under Section 162(a). This includes things like transportation costs, moving supplies, housing costs, and even some meals and entertainment expenses.
However, if a business reimburses an employee, then the employee can deduct that reimbursement as a miscellaneous itemized deduction on Schedule A. So, if you reimburse employees for travel expenses, you could take a deduction on your taxes.
Can I write off the money I spent to start my business?
Startup costs are often necessary expenses incurred in setting up a small business. These include things like legal fees, accounting software, equipment, office space, etc. If you choose to start a business, you may be able to claim some of those expenses on your taxes. However, there are certain limitations to what you can deduct. To figure out whether you qualify, you’ll want to consult with a tax professional.