Efficiency is vital in business, and when it comes to the UK’s fiscal landscape, making the most of available expense deductions can significantly impact your company’s bottom line.
If you want to reduce the tax you have to pay on your business earnings, you are in luck! Deducting your expenses is an easy way to reduce your tax bill, often by a significant amount.
All you need to do is maintain complete records of all business expenses to demonstrate that the amount you claim was spent wholly and exclusively for business reasons. Let us take a closer look at 16 ways to optimise your claims:
1. Write off interest and fees from business loans
Suppose you ever need to take a loan or raise capital (as most businesses do, at some point). In that case, you can deduct the incidental costs of acquiring that financing, such as legal and professional expenses, search fees, valuer’s fees, commitment fees for making a loan available, and land registry fees.
2. Account for permitted business entertainment costs
In general, entertainment expenses cannot be deducted. However, you can claim those costs for certain types of employee entertainment or if you are hosting a promotional event (minus the cost of food and drink). We recommend checking with Bradleys Accountants about which entertainment expenses are allowable.
3. Use standard mileage rates for vehicle expenses
This involves using simplified expenses to claim a fixed rate per mile of business travel for which you used a vehicle. It saves you the trouble of maintaining an itemised mileage log.
The mileage rate covers the cost of vehicle purchase and depreciation, so you cannot separately claim fuel costs. However, you can claim any incidental costs associated with a particular journey, such as road tolls.
4. Offset costs for promotional business gifts with your brand
You can claim back the cost of gifts given with your business branding on it, such as a diary with your logo stamped on top. The maximum allowable cost per recipient per tax year is £50, and the gift cannot be food, drink or tobacco.
5. Cover fees for professional subscriptions
You can claim back the cost of subscribing to a professional association (especially ones that require payment in return for using the qualifications associated with that profession in your name or title). In the case of a limited company, the costs of that subscription for employees are deductible when computing profits.
6. Include expenses for staff training and development
You can claim the costs of training yourself or your team to update existing skills to enable you to do business better. However, if you take training to acquire a new skill, that is counted as a capital expenditure and cannot be deducted.
7. Ensure essential personnel in your business with insurance
Particularly if you are a sole trader or in a partnership, the success of the business depends on your life and health. So you can take out “key man” insurance to guard against loss of profits from critical illness/injury or death, and the premiums for that insurance will be an allowable expense.
8. Factor in expenses related to maintaining a home office
If you run your business from home, you can claim back a proportion of the fixed costs associated with maintaining your home. For instance, you can claim back the fraction of the rent, gas and electricity that corresponds to the rooms in your house that you use as an office.
If you cannot separate out the running costs for that specific room, you will need to apportion the bills between business and private use, such as by the number of hours worked. Please read our blog on tax planning tips for more info.
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9. Offset expenses for required uniforms or safety gear
If you get clothing made wholly and exclusively for your business, such as protective garments or a uniform with your company logo that you wear only for work, you can claim those costs.
10. Adjust claims for personal use of business assets
If you carry out your business on premises where you also live, such as a bed and breakfast where the top floor is your personal residence, a simpler approach for claims is to get a fixed rate disallowance where the costs of private living are deducted from actual total expenses of running the property.
This disallowance is calculated monthly and depends on the number of people residing on the premises.
11. Choose a standardised home office claim instead of itemising
This is another provision under simplified expenses for sole traders and partnerships, wherein you can claim a fixed rate deduction based on the number of hours worked in a month without calculating actual costs.
12. Consider actual costs incurred, where appropriate
This could be useful if your vehicle costs are higher, as with a high-end sports car. While you do have to maintain full mileage logs, the amount you can get back will be higher than the statutory deduction.
13. Account for regular, day-to-day operational expenses
These are the expenses you incur on a day-to-day basis while running your business. Examples are accountancy and legal fees, power and water bills, advertising and insurance, staff costs, office rent, packaging, and internet charges.
14. Include the business proportion of mixed-use costs
If you incurred an expense for both business and personal reasons, you are allowed to claim back the business proportion as long as you can show sufficient proof, such as an itemised phone bill showing the number of business calls you made. Explore ways to do small business accounting right.
15. Write off business travel-related costs
This is a critical component of running most businesses, and you should claim them wherever applicable. The good news is that you are not required to take the cheapest mode of business transport, so if you have to fly to attend a client meeting or visit a factory, you can claim the plane fare.
However, you cannot claim the cost of commuting from home to your office. And if you use your private vehicle to travel for business, you can claim costs based on mileage, as discussed above.
16. Seek relief on irrecoverable debts
If you follow the cash basis of accounting, you can automatically claim relief for any bad debts. If you follow the accrual basis of accounting, you can make a deduction for bad debts and provision for any doubtful debts.
Over to you
And finally – we will say this again – do not give in to the temptation to deduct personal expenses! If caught, these could lead to tax enquiries for your business and potentially some very high penalties.
In case you are unsure what expenses to claim, we recommend speaking to Bradleys Accountants. It is always better to be safe than sorry when it comes to taxes and deductions – plus, as a business expense, you can also claim the accountant consulting fees! Now that is what we call a win-win. Good luck!