Heat Wave Tax Myths: What You Can and Can’t Put Through Your Limited Company
When the sun finally decides to make an appearance in the UK, it’s not uncommon for business owners to start wondering whether some of their summer-related costs can be paid for by their limited company.
Unfortunately, there are plenty of myths floating around online, and what sounds reasonable isn’t always allowed by HMRC.
Let’s look at some common summer expenses and separate fact from fiction.
Myth 1: My Company Can Pay for My Family's Summer Holiday
False
A holiday taken primarily for personal enjoyment is not a business expense, even if you answer a few emails while you’re away.
For a cost to be deductible, it must be incurred wholly and exclusively for business purposes. A family holiday won’t meet that test.
Business travel, conferences and genuine work-related trips can be different, but the business purpose needs to be clear and well documented.
Myth 2: My Company Can Buy a Fan for My Office
Usually True
If the fan is purchased for use in a business premises or a dedicated home office used for work, it is generally an allowable business expense.
The key question is whether the purchase is made for business use rather than personal comfort around the home.
A desk fan in your office is very different from a fan bought for the family lounge.
Myth 3: Ice Creams for Clients Are Tax Deductible
Usually False
Taking a client for lunch, buying drinks or treating them to refreshments generally falls under business entertaining.
Business entertaining is not normally deductible for corporation tax purposes, even if there is a genuine business discussion taking place.
Many business owners are surprised by this one.
Myth 4: My Company Can Pay for Unlimited Cold Drinks for Staff
True
Providing employees with tea, coffee, water and other refreshments in the workplace is generally fine.
During a heatwave, stocking the fridge with cold drinks for employees would normally be an allowable business expense.
This is different from entertaining clients.
Myth 5: My Company Can Install Air Conditioning in My Home
Not Usually
This is where things become more complicated.
If you work from home, HMRC will generally view air conditioning installed in your house as having a significant personal benefit.
That makes it difficult to justify as a company expense.
A dedicated office in commercial premises is a different situation, where air conditioning would normally be a legitimate business cost.
Myth 6: A Summer BBQ for Staff Is Never Allowed
False
An annual staff event may qualify for the annual function exemption.
Provided the event is available to all employees and the cost remains within the relevant limits, there may be no tax charge on employees and the company can usually obtain tax relief.
This can apply even if your company only has a small number of employees.
Myth 7: My Company Can Pay for Garden Furniture Because I Work From Home
Almost Certainly False
Garden furniture, outdoor dining sets and similar items are generally personal expenses.
Even if you occasionally work outside on sunny days, it would be extremely difficult to demonstrate that these costs were incurred wholly and exclusively for business purposes.
The Golden Rule
Whenever you’re unsure whether an expense can be paid for by your limited company, ask yourself one simple question:
“Would I still be buying this if I wasn’t running the business?”
If the answer is yes, there’s a good chance HMRC may view it as a personal expense.
Summer brings plenty of opportunities to enjoy the sunshine, but it doesn’t change the underlying tax rules. Taking a few minutes to check before putting an expense through your company can save a lot of hassle later.
If you’re unsure whether a particular expense is allowable, get in touch with your accountant before making the purchase. It is always easier to get the answer right from the start than to fix it later.
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