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Business Expenses: What Can You Claim?

Business Expenses What Can You Claim

10th July 2024

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Claiming business expenses can seem like an arduous task, but it’s an important one, as it ensures you maximise tax benefits.

Understanding HMRC rules and what can be claimed as business expenses helps you to make the most of your investment.

This can be particularly important for SMEs and contractors, who can make significant savings by following the guidelines.

What is a business expense?

If you’re struggling to understand what you can and can’t claim, you’re not on your own. A study of 1,200 UK small businesses revealed 81% didn’t fully understand what they could claim as a business expense.

As a result, 65% of owners said they had failed to file their business expenditure at some point, because they didn’t have enough knowledge to do so. Some of the failures to claim had led to the business losing out on around £10,000 in allowable expenses.

The solution for 55% of owners was to search online to try and find information. Rather worryingly, 12% of owners admitted to feeling “clueless” about what constituted expenses for a business. As a result, 2% said they felt reluctant to claim in case they made a mistake and were hit with a large fine from HMRC.

In simple terms, a business tax expense is a cost incurred during the day-to-day operation of your company for physical items or services necessary to run the business.

There are two types: tax deductible and non-tax deductible. These are treated differently by HMRC and must be recorded separately in your tax returns and end-of-year accounts.

The most common type, tax-deductible expenses can be deducted from company profits to reduce your tax bill. Non-tax deductible can be recorded, but it doesn’t reduce your company tax bill and you can’t recoup the VAT.

What are the allowable expenses for a business?

There are many allowable expenses you can claim such as business travel expenses, comprising several different aspects of expenditure.

Coming under the umbrella of travel and subsistence, claiming these expenses depends on various factors. If you're travelling to and from a temporary workplace, such as on a short-term contract that takes you away from your regular site, you can claim tax relief for travel costs. However, if the temporary contract continues for 24 months, it’s no longer considered temporary, so you can’t claim anymore. You can also claim expenses for meals at a temporary workplace.

If you’ve been subject to a temporary disruption to your normal working schedule, you will also be able to claim under exceptional circumstances. So, if you’ve had to start work at 5am, for example, rather than at the usual time of 9am, you can claim expenses for breakfast, as it’s considered to be outside your regular schedule.

Providing a subsidised canteen to your employees is also considered an allowable expense.

Mileage claims

Claim a mileage allowance for business trips and any other travel you’ve been on in the course of your work. The claimable amount depends on your vehicle.

If you’re driving your own personal vehicle, whether it’s a car or a van, you can claim expenses of 45p a mile up to 10,000 miles and 25p a mile for anything over 10,000 miles in one tax year. The claim for a motorbike is 24p per mile and 20p per mile for a bicycle, regardless of how many miles you travel.

There are many different rates if you drive a company vehicle, based on the type of fuel, the engine size and the number of miles you travel in a year, so it’s important to ensure you get it right. Making one error could invalidate your claim and mean you have broken HMRC rules.

You can’t claim for commuting to and from your regular workplace, but when your journey is between two places of business and relate to your contract, it is classed as an expense.

Parking and toll road fees are allowable expenses. However, you can’t claim for road-related fines, such as speeding or a parking ticket.

If you must take a business trip as part of your job, claim tax relief on accommodation and travel. You can also claim for public transport costs, such as train or bus.

Keep accurate and detailed records when using a car for business travel, including holding onto receipts. Make sure you can prove everything you claim travel-wise is for a trip that is “wholly, exclusively and necessary” for work purposes.

Physical items

You can claim for various physical items needed for your job, including clothing in certain circumstances. While you can’t claim for regular day-to-day clothing, such as a business suit, you can claim for a uniform, or PPE equipment such as safety garments and footwear.

Other things that can be classed as a business expense include IT equipment such as computers, training courses, stationery, telecommunications equipment, industry magazines and memberships of HMRC-approved professional organisations.

You can also claim expenses for rent and utility costs, cleaning costs, web hosting services, charitable donations, eye tests, relocation allowances, employee pension contributions and company administration fees.

Business bank charges, a company credit card or a prepaid business expenses card can also be included for tax deduction purposes.

While some of your expenses are relatively simple to process, such as those being wholly used by the business, others may be more complex, including if a company car is also being used as a personal vehicle.

Entertaining clients is a business expense for many companies to cultivate a good relationship, but it is non-tax deductible, so you can’t use it to reduce your tax bill or claim VAT back.

Many businesses hire the services of a professional accountant to navigate the complexities of business expenses, as it’s important to know that anything you claim falls within HMRC’s legislation and guidelines. You must always record your expenses accurately in case you’re ever subject to a random investigation.

The tax office will conduct regular reviews on a sample of businesses and will carry out specific investigations should it consider suspicious behaviour has taken place.