However long you've been running your limited company, there are a number of business expenses that can often go unclaimed, which may mean you've been paying more tax than you need to. Knowing what you can and can't claim as expenses is a good way to keep your company tax-efficient, so it's well worth investigating the things that can save you some money going forward.
Here, we'll run through the expenses you can claim tax relief on both in and out of the office, as well as some valuable best practice tips to help with reporting and tracking your overhead expenditure in the future.
The rule of thumb with regards to claiming tax relief on expenses is that an expense must be "wholly, exclusively and necessary" for the running of the business. However, HMRC rules can often be complex, rooted in things like the "fairness" and "reasonableness" of the expenses, which is why it's important to stay abreast of what exactly the rules surrounding limited company expenses entail.
For instance, you can't claim on anything that has a dual purpose for business and personal use. That means if you're enjoying that business trip so much you decide to extend it for leisure purposes, you can only claim tax relief for the business portion and not all the sightseeing you did as well.
Likewise, any money that you spend on entertaining clients or gifts is not allowable, even if that is a genuine expense of your business.
When you do make a claim, the majority of your expenses can be offset against the company's corporation tax. That's why it's a good idea to keep a record of receipts, invoices and similar paperwork for at least six years after filing a tax return, as HMRC may need to investigate at any point within this timeframe. The same goes for business mileage, as without the breakdown of journey and mileage covered, HMRC could refuse to validate your claim.
You can either pay your company's expenses directly from the company account or as a "reimbursed expense" when paid by you personally.
Your employees can also claim expenses, so it's worth having a company expense form and associated policies to let them know how much they're allowed to spend and in what situations. Collect and file these forms at the end of each month, and make sure that employees keep all receipts to be able to reclaim any expenditures.
If employees are frequently in front of computer screens as part of their job, then they can claim eye tests and health checks as an expense. The cost of prescription glasses and contact lenses can also be claimed as business expenses, but only if they're used for screen-based work while in the office.
Business insurances such as public liability insurance, employers liability, professional indemnity insurance, and contents insurance are all allowable expenses.
Whether it’s a one-off cost or an ongoing fee, if any advertising or marketing about your company's product or services has been used solely for business purposes, then this can be claimed as one of your limited company expenses.
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Business trips that require a stay overnight in a hotel, can have their accommodation costs claimed as a business expense. Food and drink consumed here can also be claimed as travel and subsistence costs.
Bank fees that are charged to your business accounts, including credit card and loan interest, can be claimed as business expenses.
Though childcare costs aren't directly linked to the management of your business and can't be claimed as an expense, a limited company can claim tax relief on childcare costs using childcare vouchers up to a total value of £243 each month.
If your home is the main hub of the business, it's possible to claim a percentage of your household costs and utility bills as business expenses. This can either be claimed at a rate of £4 a week, or by calculating what rooms are used for your business needs and the amount of time they're used for work purposes. You're also able to claim the costs of lighting, heating, postage and printing costs, as well as legal services and accountancy as business expenses too, provided they're solely used to business purposes.
You don't need to pay tax and National Insurance or let HMRC know about a gift or benefit for your employee (known as a trivial gift) if the following rules apply:
Occupation-specific magazine subscriptions, journals and books can be claimed as a limited company expense.
Communication utilities, including phone and broadband access, can be claimed as a limited company expense. If your mobile phone contract is in your company’s name and used solely for business purposes, you can claim the entire bill as a business expense. However, if it's a personal contract, you'll need to separate the business and personal use, and claim the business-related expenses only.
Providing it's an annual event open to all members of staff and costs less than £150 per person, any employee night out can be claimed as a business expense.
Things like computers, scanners, software and printers can all be claimed as part of equipment used to help you carry out your role. The same goes for office chairs and desks.
Personal development and training courses can be claimed as limited company expenses, though you should make sure they're eligible before claiming.
These can be claimed as long as you're responsible for paying the travel costs and the travel is necessary for work purposes. This does not include your regular commute, however.
As director of a limited company, if you choose to pay yourself a salary as an employee of the business, then this, as well as the corresponding National Insurance Contributions (NICs) can be claimed as allowable expenses. However, once you reach the National Insurance threshold, you'll have to start paying NICs.
Once an agreement with a pension provider has been established, you can pay into your pension and get 100% tax relief as a limited company expense. Note: there is a £40,000 limit on how much money you can add in tax-free to a pension scheme via your business or personally.
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