Whether you’re self-employed or run a limited company, employee expenses and business expenses are a daily consideration for many businesses.
There are numerous ways expenses can impact a business, and in this article, we explore how you can create simplified expenses.
What are allowable expenses
Put simply, allowable expenses are expenses incurred that are essential to the running of your business. This can be anything from travel expenses for business travel to digital service fees.
Allowable expenses are tax deductible. This means that you do not need to pay tax on anything that is a company expense.
Typically, an employer making purchases including things such as stationery, computers, work phone bills and even uniform can claim tax relief at the end of the tax year.
However, not everything relevant to running your business is an allowable expense, and claiming incorrectly can lead to an investigation from HMRC, and even a hefty penalty.
How do you report expenses?
Employers who provide expenses or benefits to employees or company directors need to inform HM Revenue and Customs (HMRC). This is because not all expenses are eligible for tax relief.
HMRC outline a set of variable rules for expenses for what employers have to report and pay. This is dependent upon the type of expense or benefit being provided.
Is there a list of allowable business expenses?
If your employees purchase items for business purposes, then you are required to reimburse them. For tax purposes, however, it is important to understand what can be considered an allowable expense.
With that in mind, here is a list of common allowable expenses that a business would encounter on a regular basis:
- Wages, salaries, bonuses, pensions, and benefits for staff.
- Fuel, vehicle insurance, repairs, servicing, fire charges, licence fees.
- AA/RAC membership, transport fares, hotel room costs, and meals during overnight work trips.
- Rent for office space; light, water, heat, power, property insurance, and security.
- Phone, mobile, internet, email, and fax running costs.
- Postage stationery, printing, office equipment, computer software.
- Repairs and maintenance of business premises and/or equipment.
- Legal fees—often for loans, patents, and trademarks.
- Accountant, solicitor, surveyor, architect, and other professional fees.
Although not exhaustive, this covers a large number of employer expenses in the accounts payable column.
In addition to Croner’s HR, employment law and health & safety advice, we also offer a tax service via Croner Taxwise to assist in these matters.
What expenses are non-allowable?
Whether intentionally or through lack of knowledge, many businesses try to claim for expenses incorrectly.
To avoid tax investigations and so that your team has more simplified approach to expenses, here is a list of commonly claimed non-allowable expenses:
- Client entertainment.
- Customer gifts (under £50 and not including products with advertising).
- Donations (unless they contribute via Gift Aid).
- Legal fees—often for share capital, or capital items such as equipment or property.
- Fines and penalties.
These lists do not contain all allowable and non-allowable expenses. If you need to find out about other items, or about allowable expenses for tax purposes, visit the HMRC website.
What expenses are allowable for my employees?
The most common expense that your employees will claim is for mileage. For full details on travel expenses and what your employees can and cannot claim, see our article on travel expenses.
Certain industries will require employees to have specific clothes and tools to do their job. Employers should provide these as standard, including the maintenance, cleaning, and repair of such items.
If, for any reason, your business doesn’t cover these costs, your employees can claim tax relief via HMRC.
In addition, particularly in post-Covid working conditions, if an employee works from home, they can claim a home working allowance. This can help with household costs, including electricity, gas, and phone bills.
Finally, staff who have professional fees or subscriptions that are integral to their job might be able to claim tax relief.
What are allowable expenses for limited companies?
As a limited company director, you can claim for most of the expenses in the previous list.
There are some exceptions, though. Firstly, if you work at a home office, and spend the majority of your work time there, you can claim a percentage of your gas and electricity bills. You can also claim for broadband, as long as your company pays the internet expenses.
Another allowable expense is childcare. To get this, you'll need to use an approved childcare provider, and make sure that you pay them via the company account.
Furthermore, you can claim for annual work events, if the event is annual, open to all employees in the company, and if the cost per head is no more than £150 (including VAT).
Lastly, you can claim certain medical costs, including eye tests and health insurance. For all expenses to qualify, they must directly relate to the business and be tax-deductible.
Do Croner advise on expenses?
With over 80 years’ experience providing award-winning service, Croner have a team of in-house experts who are well-placed to advise on best practise for expenses.
If you require advice, please contact Croner on 01455 858 132.
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