There have been a few questions recently about certain types of expenditure and whether or not they are tax deductible so I thought I would put them publicly here in case anyone else was also wondering.
As a rule of thumb, an expense has to be something directly incurred in the running of your business. You need to be able to prove that you spent the money wholly, exclusively and necessarily in connection with the business.
A few examples of acceptable expenses are, goods for resale, marketing, vans, wages, business telephone bills, business premises rent, rates, light/heat, repairs and insurance, business insurance, business bank account charges and interest, professional fees and subscriptions etc.
A few examples of expenses that are strictly not deductible are any private expenditure such as personal drawings, prescriptions, weekly food shop, private school fees, nursing home payments for Mum, lottery tickets, gambling losses etc.
There are lots of expenses though that if there is some business use of private things a proportion can correctly be claimed against tax. For example, home telephone, mobile phone, gas/electricity if you work at home, clothing, laundry, computers and equipment, software, use of private car, mortgage interest if you raised money for your business etc. You need to keep really clear records of these expenses and be able to justify why you feel that the proportion you claim is actually business use, and your explanation can withstand sceptical scrutiny by HMRC’s finest.
Lastly, there are some weird expenses that the tax office select for special treatment. The main one is entertainment. If you invite an overseas buyer over to seal a deal, any expenses connected with that are deductible. However, if you take a supplier out for a meal to get a cheaper price (for example), although the business may benefit, the expense is not allowable. The same applies if you are trying to woo a new customer from the UK, nothing you spend on entertaining them is tax deductible. If you are on a business trip yourself, you can claim all reasonable expenses whilst you are away including food and drinks, hotels, travel etc. But if you are just out of the office for a few hours, you cannot claim any food as subsistence as you would have to have eaten anyway.
There are also expenses approved by the actors union Equity which relate to members and include things that other business couldn’t claim such as hair do’s, stage clothing and makeup etc. But only people in the performing trades can use these variations in the normal rules. TV presenters, DJ’s, actors are all examples of people in the arts and media that this applies to.
This was never meant to be an exhaustive list and there are a myriad of other expenses that people incur which their accountant will take a view on – just ask. If you would like to contact me for any specific advice on what is or what isn’t allowed, please ring, email, text, write and ask – all details are on the contact page.