As a business owner, the basic rule is you can claim any expense that is wholly and exclusively for business use. For employees, the costs must not only be wholly and exclusively for business purposes, they must also be necessarily for business purposes, which makes it harder to justify. So business owners have it fairly easy.
Typically as a small business owner there will be many things which are used both for business and personally. Common examples would be the home broadband costs, computers that the kids also use in evenings/weekends, and mobile phones.
If something has both business and personal usage, then, by definition, it is not wholly and exclusively for business purposes.
Where there is clearly a major business motive, HMRC generally accept it is fine. The technical term here is that personal usage is merely incidental.
General rule travel for business purposes is allowable, unless it is "normal commuting". For permanent employees with a regular place of work, travel from home to office is considered "normal commuting" and is not allowable.
Temporary workplace where you expect to be working in a certain place for less than 24 months, travelling from home to the office becomes allowable. Note that as soon as you expect to work there for in excess of 24 months, travel from home to office is no longer an allowable expense. So if you start with a 36 month contract, no travel expenditure at all will be allowable. If you obtain an 18 month contract, travel expenditure will be allowed for the entire contract.
Contract extensions if your contract gets extended, from the moment you expect to be there in excess of 24 months, travel expenditure is no longer allowable. For example, if you originally obtain an 18 month contract, then when it ends you are given a further 12 month contract at the same location, none of the travel in the extended contract is allowable.
Other travel note that even if you work somewhere for in excess of 24 months, if you travel from the office to a client for example, that travel would be allowable.
Receipts if travelling by public transport, ensure you keep the receipts to back up your claim.
Mileage if driving a car, you can claim 40p/mile for the first 10,000 miles, and 25p/mile for any in excess of that. If travelling by bicycle, 20p per mile can be claimed, and 24p per mile for any journeys made on motorbike. You only need to keep petrol receipts if you wish to reclaim VAT on the petrol. If you are not VAT registered, or you are but you're on the flat rate scheme, there's no need to keep the receipts. You should keep an accurate record of mileage done to support any claim
The cost of food and drink necessarily consumed whilst on business duties is normally allowable. If your work situation requires you to eat away from home, HMRC accept this will cost you considerably more than a basic meal at home, therefore they allow you to claim these costs.
It is worth stating that you cannot deduct basic living expenses under any circumstances.
Going for a meal with your spouse is also not typically allowable, whether you discuss your business or not.
If you stay in a hotel or bed & breakfast because you are working away from home, all reasonable costs are allowable.
Whilst staying away from home, you can also claim (without receipts) a flat rate of £5 per night if staying in the UK, £10 per night if overseas.
The cost of all business calls regardless of whether on a landline or mobile are allowable. If you have a business landline or mobile where there is token personal usage, the entire cost will be allowable.
Where you subscribe to certain trade bodies, or work related magazines, these costs are allowable provided they reasonably related to the type of work you are doing. For example, it would be acceptable for an IT contractor to do a basic marketing or accountancy course to aid the running of their business. It would not be allowable if they wished to retrain as a solicitor for example.
Note that trade protection bodies such as the PCG are considered personal expenses, therefore if paid for by the company, they should be treated as a benefit in kind.
These are allowable provided they are incurred on the business bank account, or relate to business borrowing.
Professional indemnity insurance, employers liability insurance, business content insurance, and any other entirely business related insurances are allowable.
Typically the cost of computers themselves will be capital, however with the current Annual Investment Allowance, unless you spend more than £50,000 on qualifying capital expenditure within a financial year, the entire amount is deducted from your trading profit in the year of purchase (ie the entire cost is effectively allowable, although it will go in a different place in the accounts and tax returns).
Running costs, such as printer cartridges, software licences, broadband, website hosting etc are all allowable.
If you spend minimal time working from home, you can still claim £3 per week without the need for any receipts or proof of expenditure. This represents the odd business phone call from the home phone, use of a postage stamp from home to send the occasional business letter etc.
If you work predominantly from home, it is likely a significantly higher cost can be claimed.
You can claim a proportion of the home running costs. This includes: mortgage interest (capital repayments not allowed), council tax, gas, electricity, water, building/contents insurance.
The proportion that you claim should be based on the proportion of your house that is used for business, and the time that it is used for business.
For example, if you have a flat with 5 rooms, and 1 (20%) of those rooms is used for business 75% of the time, you would be able to claim 15% (being 20% multiplied by 75%) of your home running costs as a tax deductible business expense.
Client entertainment of any kind is not allowable for tax. Yes it may be wholly and exclusively for business purposes, but HMRC consider it to be borderline bribery, and therefore do not want to encourage it. It also tends to benefit specific individuals in a way that they are not taxed.
Client entertaining includes any food or drink, along with other things more obvious of a hospitality nature.
Gifts to clients are also generally not allowable. In particular if they are food, drink, or tobacco they are always disallowable.
Gifts are allowable if the total cost is less than £50 per client, they do not fit into one of the categories above, and they bear your business name/logo.
Of course, these are allowable in the vast majority of cases. We will let you know if any work we are likely to do is not allowable, as for some less common scenarios they may not be.
Be wary of umbrella companies bragging about huge dispensations. Some disreputable firms try to tell you you can claim £50, £100, or even more, per day, with no receipts required whatsoever.
Dispensations actually mean the umbrella can repay expenses to you without them needing to see receipts and fill in a P11d for you. You still need to keep receipts to backup your claims. If you have claimed a flat rate amount without a receipt, and you get caught, it will be you that gets clobbered by HMRC. Umbrella companies tend to keep quiet about this.
Maslins offer a complete contractor limited company accounting system from as little as £59+VAT/month..