As accountants, we often get approached by clients and the public with all sorts of tax questions. So over the next few articles, we continue to answer some of the more common questions. This issue we are looking at business expenses:
Here is just a selection of recent queries:
Now I’m trading, does that mean I can claim for all expenses? You can claim for all expenditure so long as it wholly and exclusively for the purpose of trade. Common types of expenses include stock, advertising, insurance, repairs, postage, stationery, travel, staff, etc. These can be claimed in your accounts as a deduction against your income; therefore allowable for tax purposes. If the costs are notwholly connected with your business, then they would not qualify.
Does that mean I can’t claim for use of my vehicle as I don’t use it wholly for business? Because the proportion of business-to-private mileage can be reliably measured, HMRC do permit a claim for your vehicle. In fact, the same applies for other measurable costs, e.g. phone expenses. The rules with vehicles are extremely involved, and generally speaking are more favourable for the self-employed, rather than for owners of limited companies. Definitely speak with your accountant before purchasing any vehicle as this can have a significant impact on your tax.
I spend a lot of time working from home. Can I claim my utilities, council tax and mortgage? Generally speaking, you can’t specifically claim for council tax or mortgage as these are fixed costs regardless of your use of home for work. There is however some general relief available for working from home, i.e. you can claim a fixed amount if you have a designated office of £10-£26 per month depending on the number of hours you work in it. There are alternative methods of claiming from home, but this is the most straightforward.
I buy a lot of clothes that I only wear when seeing clients. Can I claim for clothing? Clothing is not generally an allowable expense, even if it is a business suit that you would never usually wear. This is because regular clothing serves a dual purpose, i.e. business-use and preserving your modesty! This principle has been upheld in tax case law. That being said, specialised trade-specific clothing may be claimed, such as work overalls, high-visibility jackets, theatrical costumes, and any item of clothing emblazoned with your company logo.