Allowable Expenses for UK Companies
When it comes to claiming business expenses for a limited company, the fundamental rule is these expenses incur wholly and exclusively during the everyday running of the business. Businesses should not claim the expenses for personal purpose and dual purpose for business and personal use. For example, if a director or an employee extends a business trip abroad for leisure purposes, only the business days can be claimed, but not the whole trip.
- Allowable Expenses for Corporation Tax Purpose
For corporation tax purposes, one of the fundamental conditions that must be satisfied for an item of expenditure to be deductible, is that it must be incurred ‘wholly and exclusively?for the purposes of the trade, profession, or vocation. For costs and expenditures that can be deducted from a company’s income are termed as allowable expenses. These expenses can help reduce the company’s corporation tax liability. Taxable profit for calculation of corporation tax liability is derived from all sources of income after allowable expenses.
- Allowable Expenses
Here are some common allowable expenses for limited companies in the UK:
(1)
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Office Costs
- Rent, business rates, and utility bills;
- Office supplies and stationery;
- Business landline, mobile and internet bills.
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(2)
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Employee Salaries and Benefits
- Employee wages, commission, tips, bonuses, and benefit packages;
- Employer National Insurance contributions and pensions contributions for employees;
- Employee training and development costs;
- healthcare services.
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(3)
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Travel Expenses
- Travel costs for business-related journeys, such as fuel, public transport, and accommodation;
- Mileage allowances and parking fee for employees using their vehicles for business purposes.
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(4)
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Subsistence Expenses
- Costs for meals and accommodation while on business trips;
- Reasonable expenses for food and drink during working hours (e.g., for employees on long shifts).
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(5)
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Marketing and Advertising
- Advertising and promotional costs;
- Website development and maintenance expenses.
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(6)
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Professional Fees
- Fees for accountants, solicitors, and other professional services;
- Membership fees for professional bodies relevant to business.
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(7)
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Financial Costs
- Bank charges and interest on business loans or overdrafts;
- Fees related to credit card processing for business transactions.
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(8)
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Softwares and IT Costs
- Repairs and maintenance of business equipment;
- Costs for leasing or financing equipment used in the business.
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(9)
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Charitable Donations
Donations made by the company to registered charities may be deductible.
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(10)
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Annual Staff Party Expense
It can be a Christmas or summer party, the costs of entertaining employees can be claimed as a business expense as long as it is an annual event open to all staff members and the costs per person is less than ?50.
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(11)
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Trivial Benefits
All following criteria’s need to be met:
- Costs ?0 or less to provide;
- It is not cash or a cash voucher;
- It is not a reward for employee’s work or performance;
- It is not in the terms of employment contract.
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(12)
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Setup costs
Limited companies can claim relevant expenses for up to 7 years before the business begins operations. Expenses can be:
(1) Computer equipment and peripheral products;
(2) Software, internet & web domain fees;
(3) Travel costs;
(4) Professional services can include the costs associated with accounting and legal help, such as company formation and drafting of contracts.
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(13)
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Depreciation costs
Depreciation is an accounting method of allocating the purchase cost of a tangible or physical asset to spread the cost over its useful life or life expectancy. A company can decide which method and useful life of an asset for depreciation allocation. Nevertheless, HM Revenue and Customs (HMRC) has different percentage to apply to different types of assets for claiming depreciation which is called Capital Allowance.
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- Records and Updates
It is crucial to keep detailed records of all expenses and ensure they are wholly and exclusively for business purposes, especially when claiming for VAT invoices.
Additionally, certain expenses may have specific rules or limits imposed by HMRC, and Tax laws and regulations can change over time, so it’s essential to stay updated with the latest guidelines from HMRC.
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