Many businesses unnecessarily pay additional tax each year. This is because legitimate tax deductions go unclaimed. This situation is particularly rife amongst small business owners who choose to manage their affairs without seeking the advice of a professional tax advisor.
Whilst HMRC applies specific tests to specific expense items, the general rule is that an expense item is tax deductible when incurred wholly, exclusively and necessarily for business purposes. Expenses incurred wholly for personal use are not tax deductible. If an expense item has a mixed element of business and personal use, you might be able to apportion some of the item’s expense against your tax bill depending on the item in question.
When you claim an expense to be tax deductible, you must retain the item’s records for a period of six years. These records typically include invoices or receipts. HMRC levies a penalty of up to £3000 for failure to retain expense items’ records.
The rest of this post outlines expense items you may legitimately claim as tax deductible. Please be aware this advice is applicable to those trading a limited company
Accommodation is a legitimate business expense for tax purposes when incurred wholly, exclusively and necessarily for business purposes e.g. the cost of a hotel room during a business trip. This expense may also include the renting of an apartment when ‘working away’ for extended periods of time. This includes the cost of council tax and utility bills. However the cost incurred during weekends is not a legitimate business expense. You therefore must work out the expense attributable for personal use and ensure this element is not included on your tax return. Click here to learn more.
#2. Professional fees of your accountant
Your accountant’s fee or the fee for a bookkeeper company fits the description of wholly, exclusively and necessarily incurred for business purposes. Expenses of this nature are therefore allowed to be deducted from revenue. The only exception to this rule is when these professional fees arise from a HMRC ‘enquiry’ and the enquiry is proven to have arisen from negligence or fraud.
#3. PR, advertising and marketing costs
Again, these expense items are allowed since they are wholly, exclusively and necessarily incurred for business.
#4. Christmas party and other ‘annual events’
Christmas parties and other annual events are allowed under the rules. You may claim these expenses as tax deductible at a rate of £150 per head. Click here to learn more. This extends to other ‘annual events’ as well as a Christmas party e.g. Easter or summer party.
#5. Bad debts i.e. when invoices are not settled
Unpaid invoices must remain unpaid for a period of six months before the amount may be legitimately claimed as an expense. If the debtor later pays his or her bill, you must declare the income on your tax return. A failure to do so could result in a penalty.
#6. Bicycle mileage
You may claim mileage done on a bicycle at a rate of £0.20 per mile. This includes mileage between home and work and also mileage between work and client meetings. You may not claim the price of your bicycle or maintenance costs. This is because the bicycle is deemed personal property. Click here to learn more.
#7. Business gifts
Business gifts up to the value of £50 per year are tax deductible. The gift must carry a ‘conspicuous advertising message’ for your business. Gifts of food, drink, tobacco or a token or voucher exchangeable for goods are not tax deductible. Click here to learn more.
#8. Vehicle hire
Vehicle hire wholly, exclusively and necessarily incurred for business purposes is tax deductible. Often the vehicle will be used during evenings or weekends for personal use. Here you must calculate the time ratio spent between business and personal use of the vehicle. You may then split costs between a deductible and non-deductible amount based on this ratio. Click here to learn more.
#9. Protective clothing, tools and uniforms
The cost of clothing, tools and uniform wholly, exclusively and necessarily incurred for business purposes are allowed to be set off against your tax bill. Such items include safety boots, helmets, power tools, tools, or any type of uniform e.g. nurse’s uniform. The cost of business attire (e.g. suit and shoes) is not a legitimate deduction. Click here to learn more.
#10. Computer consumables and hardware
Both of these items may be deductible. This includes items used wholly, exclusively and necessarily for business purposes. This includes the repair of computer equipment. If a home office uses a printer for both person and business use, only the cost of usage attributable to business use is deductible.
click here to learn more.
The rules on this item are complex. Please call an advisor for more information.
#11. Director’s salary
A director’s grossed-up salary is a legitimate business expense. This includes the director’s NI contributions. click here to learn more.
#12. Donations to charity
You may permissibly deduct donations made to charities from your pre-tax profits but only where you make a profit. Click here to learn more.
#13. Staff wages
You may deduct employees’ gross wages (incl. PAYE and NI) from your pre-tax profits. Click here to learn more.
#14. Eye test
The cost of an eye test, glasses and contact lenses used solely for use of a visual display unit (VDU) is allowed to be deducted from your pre-tax profits. Click here to learn more.
The cost of flights is a deductible expense provided the reason for the journey is solely for business purposes. Click here to learn more.
#16. Insurance payments
The cost of insurance is a deductible expense. This includes premises and content insurance, professional indemnity insurance, public liability insurance and employer’s liability insurance. Even tax investigation insurance is permissible! Click here to learn more.
#17. Bank loan interest
Interest charged on bank loans used wholly, exclusively and necessarily for business purposes is an allowed business expense.
The cost of broadband/internet used wholly, exclusively and necessarily for business purposes is an allowed business expense. Click here to learn more.
#19. Landline telephone
Same as #19 above.
#20. Leasing of office equipment
Same as #19 above.
#21. Solicitors and other legal costs
Same as #2 above.
The cost of membership incurred wholly, exclusively and necessarily for business purposes is an allowed business expense. This includes membership to a professional association such as the Law Society or Royal College of Surgeons amongst offers. Click here to learn more.
Mileage is a deductible expense provided the journey is wholly, exclusively and necessarily for business purposes. For cars, this cost is fixed at £0.45 per mile for the initial 10,000 miles and £0.25 for each mile thereafter. For motorcycle travel, the cost is fixed at £0.24 per mile. This amount claimed covers petrol and wear and tear to your vehicle. Click here to learn more.
#24. Cost of mobile phone
The cost of a mobile phone is deductible as long as calls and text messages are used wholly, exclusively and necessarily for business purposes. Employees may either pay for the phone themselves and request reimbursement or the company may take the mobile phone’s contract out in its own name and thus pay the bill directly. Click here to learn more.
#25. Premises rental costs
The cost of renting business premises is a legitimate business expenses provided the premises is used wholly, exclusively and necessarily for business purposes.
#26. The cost of parking
Legitimate parking fees incurred during business trips is an allowable expense. However, under English common-law (see CIR v Alexander von Glehn Ltd  12TC232) parking fines are not deductible since this amounts to an ‘infraction of the law’. Click here to learn more.
#27. Training courses
The cost of training courses incurred wholly, exclusively and necessarily for business purposes is allowed. The cost of training courses designed to improve personal skills (e.g. hobby courses) is not allowed. Generally the cost of a training course is valid where course content updates rather than adds to existing knowledge. For instance a car mechanic could not legally deduct the cost of an Open University course on electrical engineer from his or her pre-tax profits. This is because the course is not essential training for a car mechanic. Click here to learn more.
#28. Home office use
You may claim the cost of a home office from your revenue. This figure is fixed at £4 per week plus a proportion of certain utility bills. Click here to learn more.