What expenses can I put through my business?
We all know when it comes to what you can and can’t claim as a business expense it can sometimes feel like a “how long is a piece of string” conversation, making incorrect claims can land you in a bit of bother with HMRC which is the last thing we want.
Understanding what can be claimed as a business expense and what can’t be claimed is important to protect the business and yourself and more so to make sure you are running the business in the most tax efficient way.
Below we will clarify what can and can’t be expensed through a Ltd company.
The rule of thumb is to always remember 3 key words – Wholly, Exclusively, and necessarily
Business expenses should be wholly, exclusively, and necessarily for the purpose of the business, to fit HMRC’s definition of a business expenditure these three key words need to be met.
What does it actually mean?
The definition of wholly, exclusively, and necessarily means that an expense does not fall as a claimable expense unless it is wholly exclusively and necessarily for the purpose of the business. What that means is the expense needs to be wholly, exclusively and necessarily related to the business… for example if you are on a weeklong trip away in the sun and just so happen to have a meeting on the Monday (and maybe even Tuesday) but spend the rest of the trip enjoying the sun this is not a business expense but in fact a personal expense with some business related meetings on the side. That said if you reverse that and have meetings mon-fri and spend the weekend enjoying the sun then it would be classed as a claimable business expense. Another example of an expense that would fit these 3 key words would be something like business insurance or even accountancy fees (all of which is directly linked to the business!)
Below is a list of some of the things that are seen as acceptable expenses
- Office Costs
- Professional Fees
- Business Travel
- Professional Subscriptions
- Marketing
- Lunch Meals
Expenses that have a grey area
- Clothing
- Travel
- Use of home as an office
- Client entertainment
What you have to think about is that if you can convince HMRC the expense is directly related to the business it should be fine to claim but if you’re not sure then don’t take the risk.
Remember to keep all receipts for any expenses claimed, although your accountant may not always need or ask for it you have an obligation to keep all receipts for up to 5 years.
It’s good to keep in mind however, even from the above list the 3 key words (wholly, exclusively, and necessarily) still need to be taken in to account to consider (i.e., Driving to a client’s premises for a meeting would class as a business expense but driving to a friend and having a zoom meeting wouldn’t).
Claiming expenses incorrectly can have consequences.
Claiming little things here and there might not seem like a big deal but they can potentially cause bigger consequences later down the line, one thing we don’t want is to have trouble with HMRC. The process can be lengthy and costly and can cause them to look deeper and deeper.
It is vital to have an audit trail of all your expenses and finances and have everything saved in case you ever need to call upon it.
Having a better understanding of what you can and can’t claim as a business expense is really important to be able to run your company in the most tax efficient way.
In some instances, it’s not always about saving tax, you might have a need or requirement to show more through the company for things such as mortgage purposes or even visa purposes. It’s always important to speak to your accountant and discuss you short term/long terms plans so the best advice can be given to you.
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