Understanding Business Expenses: What Can You Claim?

Wondering what expenses you can claim? We have written a summary to give a helpful overview.

If you’re a small business owner, you may be wondering which expenses are allowable and which can be claimed for tax relief. While having proof of purchase is important, it’s not the only factor to consider.

Business expenses are products or services that help keep a business running. These costs can be deducted from income when calculating taxable profit. Some examples might include stationery, phone bills, and travel costs. Revenue expenses, such as rent, insurance, heating, repairs, and maintenance, are some of the most common business costs during an accounting period. Capital expenses, which are assets likely to have lasting benefits, qualify for a form of tax relief known as capital allowances.

The most important rule when it comes to expenses is wholly and exclusively for business use.  Whatever you purchase needs to fall into that category.  This is the case for any business structure.

Here is a list of some revenue expenses and the types of expenses HMRC allows you to claim for tax relief:

• Wages, salaries, and related staff costs – if you run a limited company, your salary is part of this; if you are set up as a sole trader, your drawings are not included in this.
• Insurance, rent, rates, and power.
• Car, van, and travel expenses for business trips – this is mileage if the car is not owned by the business.
• Advertising and marketing.
• Other office running costs – this could be uniform or work clothes that have a work logo on, as well as other items.
• Professional fees – such as our fees.
• Banking and other financial charges.

However, there are some revenue expenses that aren’t applicable when it comes to tax relief. These are known as disallowable expenses. Examples of disallowable expenses include business entertainment, the repayment of loans taken out personally, the depreciation of assets, drawings including payments for tax and National Insurance, and costs resulting from breaking the law e.g. speeding fines and parking tickets.

When starting a business, you may incur pre-trade expenses, which are costs before starting to trade. These expenses can also be claimed for tax relief if you start trading within seven years of incurring the costs.

Managing expenses can be tricky, but with the right accounting software and advice from a knowledgeable business advisor (like us), you can track and organise your expenses effectively and make informed decisions that contribute to building a profitable business.