Last week, we asked on Twitter what confused you most about the "numbers' side of running a business, and nearly all of the replies were about expenses - what you can claim (AKA "allowable expenses") and what you can't.
I've rounded up the most common expenses causing confusion and how to deal with them. Because I'm nice like that.
Food and drink
Food was by far the expense I was asked about most - I mean, food is definitely something I think about all the time so I'm glad you're on my wavelength!
You generally can't claim food or drink back as expenses, UNLESS they are purchased for subsistence as part of travel expenses outside of your usual working pattern, for example if you are required to stay away from home overnight for work.
This is because HMRC state that you can only claim expenses which are "wholly and exclusively for the purposes of the trade" and you need to eat food to stay alive, so it generally doesn't meet that criteria. Here are some examples of when food can and can't be claimed.
Travel has similar guidelines to food, you can only claim expenses for journeys which are not part of your usual work travel.
If you get the train to your office every morning, the cost of your train ticket/pass isn't an allowable expense, but if you have to get the train to a business conference you can claim the cost of your tickets as an expense. You can also claim the cost of your accommodation if you have to stay somewhere overnight.
If you rent an office and pay utility bills purely for your business, you can claim these as expenses.
If you work from home, you can claim a proportion of your gas and electricity costs as a business expense.
You can work out the actual costs using the number of rooms in your house and how many of those you use for work and the percentage of time you use those rooms for business.
So let's say you have an electricity bill of £100, you have four rooms in your house and you use one as your office 75% of the time. You would multiply 100 by 1/4 (or 0.25), which gives you 25, and then multiply that by 75% (or 0.75) which gives you 18.75. Therefore, you spent £18.75 on electricity for business use.
Or, if you work from home for over 25 hours a week, you can use simplified expenses, which give you a flat rate to claim based on how many hours a month you work from home (details of amounts here).
Nope. Sorry! Childcare isn't "wholly and exclusively for the purposes..." you get the picture.
However, you may be able to claim tax credits to help you out with childcare costs, if you don't already.
Internet/tech related expenses
I know that most of you run your business online, so hopefully this will be useful!
You can claim most internet/tech related costs for your business as expenses, including:
- Website costs - hosting, domain renewal, etc.
- Purchasing a new computer/phone - if you only partially use it for business you need to apportion the costs like you would with utility bills.
- Mobile phone bill - as above.
- Software - e.g. Photoshop, Microsoft Office.
- Training and courses - usually allowable if they are part of keeping up to date with your current trade, but not if they are to learn a new skill. Best to check with HMRC if you aren't sure.
Keep in mind that equipment such as computers and printers, and software you use for over two years should be claimed as capital allowances instead of allowable expenses on your tax return if you use traditional accounting instead of cash basis accounting.
If you make regular payments to use software, for example paying a monthly fee for Office 365, this is an allowable expense, not capital allowance, even if you use it for more than two years.
As always, make sure you keep receipts for any costs you incur as part of your business expenses.
I really hope this has been helpful and made sense! The world of expenses can be a tricky one. If I've missed anything that you have a question about, please leave a comment or tweet us and I'll make sure I get back to you.
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