What are Allowable Expenses?
Allowable expenses are tax deductible. This means that you don't need to pay tax on anything that is a company expense. Typically, an allowable expense is a payment that is essential to the running of your business, such as stationery, computers, work phone bills, etc. 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.
List of Allowable Business Expenses
So, here is a list of common allowable expenses a business has:
- 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.
List of Non-Allowable Business Expenses
And here is a list of the common non-allowable expenses that businesses try to claim:
- 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.
Allowable Expenses for Employees
The main allowable expense employees are likely to claim for is mileage. For full details on travel expenses and what you 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 an employer doesn't cover these costs, employees can claim tax relief via HMRC. 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.
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.
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