In the next of our blog series focusing on the ‘All You Need to Know About…’ various different elements of running your own business, today we are going to be looking at expenses that you may put through your business.
When running your own business, whether as a limited company or a sole trader, you may be uncertain as to what exactly you can pay for straight from the business. Any expenses that you put through your business will help to reduce your tax (corporation tax if using a limited company, personal tax if working as a sole trader). However, you will need to ensure that you are claiming the right expenses as HMRC do have strict (and sometimes, confusing!) rules around business expenses.
The expenses ‘golden rule’
An expense can be claimed if it is wholly, exclusively and necessarily for the purpose of the business.
This means that if an expense is both necessary for the running of your business, and is solely going to be used by the business (i.e. not used personally as well), then it is an allowable expense.
The most common expenses that can be claimed
The types of expenditure you can claim for through your limited company is largely dependent on the type of sector you are working in, builders for example are likely to have far more varied expenditure than say a management consultant who mainly works behind a desk all day. Below, we have listed the most common, general business expenses for a service based sole trader/limited company:
- Business travel (subject to the 24 month rule- do check with your accountant that this applies to you)
- Mileage claims of 45 pence per mile for the first 10,000 miles of the year (25 pence thereafter)
- Business insurances such as professional indemnity insurance
- Hotel stays and subsistence for overnight business travel
- Telephone and broadband costs
- Stationery and postage
- Computer, software and printing costs
- Business assets required for your work, such as laptops, cameras, professional equipment
- Professional subscriptions
- An allowance for using your home as your office (the amount claimable differs for sole traders and limited companies- more information can be found here)
- Accountancy fees and legal costs
- Uniforms, protective clothing or costumes for actors/entertainers
- Marketing and advertising
- Training courses and seminars
This is not an exhaustive list by far but is a general guide most sole traders and limited companies can use. If you are unsure if you can claim specific items through your business it is always best to run these past your accountant who will be able to give specific advice.
An additional note regarding sole traders
It is worth pointing out that if you are a sole trader, who doesn’t incur a large number of expenses in the year, then claiming the ‘£1,000 tax free trading allowance’ may be more beneficial to you. This is when, instead of offsetting the actual expenses incurred against your income, you instead can deduct up to £1,000 from the income. This is likely to be the best option for you if your expenses do not exceed £1,000.
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