LWA Blog: What are considered deductible and non-deductible expenses for business?
16/10/2019
Can you claim lunch with a client as a business expense? How do you manage employees’ expense claims? What if you’re self-employed and work from home? There are so many questions around what can and can’t be claimed as expenses by a business, and below, we’ve written a practical article that aims to answer these questions.
The structure of your business
Claiming expenses is ultimately going to reduce your profits and therefore any tax payments due on your profits, however what you can and can’t claim, as well as rules around submitting expenses, can vary depending on how your business is structured. For example, if you’re self-employed, you cannot claim money used for a private purchase as a business expense, whereas if you run a limited company, any item purchased for personal use must be reported as a company benefit. So, it is best to check your specific circumstances with your accountant.
Allowable expenses for business
Below is a summary of the main types of expense and what is considered deductible and non-deductible by HMRC. You can use it as a guide to know which receipts you need to record details of and which ones you can throw away as you won’t be allowed to claim, for example, that suit you bought for your meeting next week cannot be claimed as Uniform!
| Type of Expense | Deductible | Non-Deductible |
| Clothing | Uniforms (costumes for entertainers), safety equipment | Everyday clothing, even if you only wear it to work |
| Legal and Financial | Professional services such as accountants and solicitors’ fees, PI insurance. Bank charges, interest on loans, leasing payments, alternative finance payments e.g. Islamic finance. | Fines for breaking the law, loan repayments, legal costs of purchasing property and equipment (but you can allocate these to Capital Allowances if you use traditional accounting). |
| Office | Running costs such as phone bills, stationery and items you’d use less than two years. Computers, printers and other equipment only if you use Cash Basis Accounting. | If you use traditional accounting, computers, printers and other equipment can be deducted as capital allowance, not as an allowable expense. |
| Marketing | Website costs, free samples, direct marketing mailers, advertising | Entertaining or event hospitality |
| Premises | Lighting, heating, business rates | Buying a building |
| Staff | Employee salaries, subcontractor fees, bonuses, benefits, pensions and NIC payments | Help needed in the home such as nannies or cleaners |
| Stock | Raw materials, costs for producing goods, items purchased that you will sell on | Items for personal use, depreciation |
| Subscriptions | Journals, membership fees to professional bodies | Gym membership |
| Training courses | Courses that improve skills and knowledge related to your current work | Courses for starting a new business or expanding your existing business |
| Travel | Vehicle insurance, fuel, breakdown and repairs. Travel fares, hotel rooms and meals on overnight business trips. | Personal driving or travel costs, fines, commuting between home and work. |
Capital Allowances
Items classed as business assets or things you buy to keep and use for your business can be claimed as a capital allowance. Such items include computers, printers, business vehicles and other equipment and machinery.
Simplified Expenses
If you’re a sole trader, simplified expenses may be a better option than trying to work out actual business costs for the areas covered in the above table, where flat rates are used instead. This format of accounting may be more suitable particularly if you work from home or live in your business premises. They’re also considered easier to use when working out business costs for vehicles.
An easier way of logging expenses
If you’re still keeping receipts piled up until you manage to find a few hours spare to record them on your business expenses spreadsheet or accounting software, you might want to consider subscribing to a pre-accounting platform. Receipt Bank helps businesses save valuable hours of time by pulling information from receipts and invoices quickly, accurately and efficiently all by simply taking a photograph with a mobile phone. From the comfort of your own smartphone, whilst waiting for meetings to begin, or whilst on your commute home, you can add receipts and invoices without the need of an office computer.
LWA have recently been accredited as Gold Partners with Receipt Bank allowing us to provide FREE unlimited subscriptions to our clients, saving them £25 per month per user.
For more information on what can and can’t be claimed as an expense, please visit HMRC’s Business section on their website. If you’d like support on maximising profits whilst minimising tax on your business accounts, or to learn more about Receipt Bank, speak to a member of the LWA team in Warrington on 01925 830 830 or call our South Manchester office on 0161 905 1801.
