Allowable Business Expenses

In all cases an expense is allowable only if

  • it was reasonably incurred  (To be reasonably incurred, an expense must be: appropriate to the business and necessary to the business and not excessive in relation to the nature of the business & the level of trading & the number of employees)
  • it was wholly and exculsively incurred for the purpose of the business or spent for the purpose of the business and
  • it was relevant to the assessment period or  spent in the assessment period. 

A List of Allowable business expenses :

All day-to-day expenses of a business including

  • Accountancy charges
  • Advertising
  • Cleaning of business premises
  • Difference between opening and closing stock (on accounts)
  • Discounts allowed to customers
  • Employees' wages before any deductions are made, including any wages payable to the domestic partner
  • Employer's contributions to employees' pension scheme
  • Employer's (secondary) Class 1 SS contributions
  • Heating and lighting
  • Hire or rental costs (but not any capital or purchase elements)
  • Interest payable under a credit sale, a consumer credit agreement or a hire purchase agreement (but not the capital element of payments )
  • Legal fees associated with the business
  • Payment in kind for work done for the business - the monetary value is allowable
  • Rent and Rates
  • Stationery
  • Stock purchases
  • Sundries, or miscellaneous items, which are small in relation to total allowable expenses provided that the decision maker is satisfied that no non-allowable expenses, for example for business entertainment, are included.
  • Telephone,Mobile, Fax, Internet: If the account is in the company name and any private use is not significant then there is no taxable benefit for internet usage. If the account is personal then you may only claim a proportion of the bill based on your business usage.
  • Professional Subscriptions:  Claims for subscriptions to professional bodies relevant to your employment are   permitted. This is restricted to certain professional bodies approved by HMRC.
  • Reference Books and Journals: Reference books and journals provided these relate to the duties.
  • Professional Subscriptions:  Claims for subscriptions to professional bodies relevant to your employment are   permitted. This is restricted to certain professional bodies approved by HMRC.
  • Training: The cost of training courses provided these relate to the duties of your employment.
  • Entertaining: Expenses related to bona fide business entertaining may be claimed if the entertainment meets all of the following criteria:
    • Customers or potential customers are present, and
    • No member of the employee or office holder’s family is present, and,
    • Where the purpose of the event is not predominantly social, (e.g. reciprocal entertaining).

A full explanation of entertainment expenses should be documented and substantiated by original receipts.

  • Transport excluding any home-to-work costs - also if a vehicle is used partly for private purposes

Employee vehicles: mileage payments for business travel

Type of vehicle Rate per business mile 2017-18
Car For tax purposes: 45p for the first 10,000 business miles in a tax year, then 25p for each subsequent
Motorcycle 24p for both tax and NICs purposes and for all business miles

Bicycle

Passengers

20p for both tax and NICs purposes and for all business miles

5p per mile

Non Allowable Expenses

Payments are NOT expenses of a business if they are:
1) income tax of the self-employed person
2) income tax deductions for employees
3) personal consumption
4) personal drawings
5) social security contributions: Class1,Class 2 ,Class 3,Class 4
6) SSP or SMP paid to an employee to the extent that the employer has recovered these payments.

7) Other Non- allowable Expenses:
Office Clothing such as business suits (except safety clothing)
Spectacles
Car service and repairs
Training Courses not related to your employment - e.g. plumber claiming skiing instruction
Private club subscriptions - e.g. Golf Club membership
Entertaining: Entertaining expenses are always disallowed in the company's accounts as a deduction for Corporation Tax. The areas most likely to raise an inquiry by HMRC into the company's accounts are the Director’s travel and entertaining expenses as these have the most potential for abuse. The cost of entertaining staff or colleagues in the same organisation is not considered bona fide business entertaining. SEE ABOVE for allowable.
For details of these and more, please visit www.hmrc.gov.uk