When running a limited company, there will be expenses which you are required to pay. Tax deductible expenses are those which ‘wholly and exclusively’ relate to the running of your business. You can deduct these expenses from your revenue to calculate taxable profits, only if the expense is allowable.
Here are four expenses that people frequently believe are not tax deductible.
1. UNPAID INVOICES
There may be occasions where you felt disappointed and impatient after working hard to complete a client order only to wait for an invoice to be paid. Additionally, those invoices may occasionally never be paid.
In the event that you are certain that you will not be able to recover the money from the customer, HMRC allows you to claim any amount that will not be reimbursed. They permit you to deduct such outstanding invoices from your business income when you complete your tax returns.
2. STAFF ENTERTAINING AND BUSINESS GIFTS
Entertainment costs that are business-related are not usually allowed to be treated as tax deductible expenses. However, we can all agree that festive get-togethers boost employee morale. But did you know that a large portion of the money that you spend entertaining the staff can be deducted from your business taxes as an tax deductible expense?
HMRC allows you to treat expenses as tax deductible providing the following conditions are met:
- The cost per employee attending the party must not exceed £150;
- It is an annual event such as a Christmas party or a work ball;
- The social event must be open to all employees of the company.
What is the best way to show your appreciation to your staff or a client? Christmas gifts – these are normally tax- deductible expenses and are treated in the same way as entertainment expenses. The following conditions must apply for the expense to be tax deductible:
- The gift is not cash or a cash voucher;
- The cost of the gift does not exceed £50;
- The gift is not specifically a reward for their work or performance;
- The presentation of the gift must not be part of their contract.
3. MILEAGE COSTS
If you didn’t already know, mileage allowance relief can be claimed by an employee on any business mileage that they have incurred and have not been completely reimbursed by their employer. You are eligible to claim 45p per mile for cars and vans for the first 10,000 miles and after 10,000 miles the rate reduces to 25p per mile. On top of that if an employee is carrying another employee in their car/ van for business purposes, they can claim another 5p a mile per passenger.
For those that do not use a car or a van as their primary transport, HMRC allows you to claim bike mileage for every mile travelled for work purposes. These trips could include anything like meetings, work functions or delivering items or services to a client. In this case you can only claim 20p per mile for any work-related bicycle trips. However, unlike cars or vans, the amount that you are allowed to claim remains at 20p per mile, no matter how many miles you have travelled. These expenses are allowable and can be claimed on the Company Tax return.
4. SUBSCRIPTIONS AND TRAINING COURSES
Trade subscriptions are an expense that you can claim tax relief on only if they are directly linked to your job – these include any professional bodies or trade publications. It is important to note that any personal subscription expenses such as gym or student memberships are not classed as tax deductible expenses.
Alongside that you can claim any work- related training courses for yourself or your employees. As long as the courses directly apply to the employee’s job, such as a CPD course or any other educational course, you are allowed to treat these expenses as tax deductible. Even though you do not have to report any of the training to HMRC, you are expected to keep a record of the expenditure so that you can confirm that the training is work-related in any case. Alongside all the other expenses that have been mentioned, there are conditions to this. The expenses must be paid directly by the business and not by the staff member. For instance if they have paid for the training courses through a salary sacrifice scheme, these cannot be claimed and treated as business expenses.
There are many more expenses which you might not realise are tax deductible; speak to a member of TC Group today to find out other ways to save you tax.