Understanding allowable business expenses is important

get organisedThis month is a good time to look at all aspects of your business “housekeeping” for two reasons.

Firstly, it will be some time before businesses have a clear picture of the effects of June’s EU referendum result on the UK economy and on trade so businesses can use this period to bring systems, process and records up to date and develop a clear picture of their current position.

Secondly, late July and most of August are traditionally the time when many people take a break and with the housekeeping done it is much easier to relax and to use the time for thinking and reflection to be reinvigorated for the return to work.

First on our suggested housekeeping list is business expenses and what can be claimed.

A key issue for many businesses is understanding what items are allowable business expenses and this can be important for ensuring a business does not pay out more than it needs to in tax.

It should be said at the outset that the regulations on what can be claimed as a business expense are complex and businesses would be well advised to consult their accountants or tax advisors.

What follows is therefore an overview.  The general rule is that most business expenses are likely to be allowable for tax relief.

This would cover accommodation, use of private cars, meals, repairs and renewals, business rates, energy and other overheads.  The devil, however, is in the detail.

Accommodation of staff is a good example.  Hotel stays would be allowable, but a company renting a flat for staff is only allowable if the journey is considered by HMRC to not be commutable. Travel expenses are also conditional.  Most people are aware that travel from home to work cannot be claimed as a business expense.  However, in some circumstances use of a private car for work is eligible for a mileage allowance at 45p per mile for the first 10,000 miles and at 25p per mile thereafter. In most cases a company car is likely to be more tax efficient.

Meals are allowable if staff are likely to be away from their normal place of work for more than five hours but be aware that there is a lot of HMRC advisory guidance on the details. There is no tax relief for entertaining clients.

Repairs and equipment replacements are allowable as capital expenses if the value of the items is more than £100.

Business rates and overheads are allowable provided the business is occupying business premises. For the self-employed and people working from home the regulations for claiming overheads changed in 2015-16 to a new flat rate allowance graded on how many hours are worked.

The lessons are to seek advice about the details, to understand what precisely can be claimed for and to maintain meticulous records just in case HMRC wants to inspect them.

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