Business expenses

A guide to claiming expenses

Not sure how you should categorise your business and personal expenses? This article may help.

This article lists all of the expense categories in FreeAgent and guidance about how they should be used.

Important: the following information should only be used as a rough guide to categorizing expenses. You should always get professional accounting advice if you're in any questions or doubts.

Admin Expenses

Accommodation

Accommodation may include stays in hotels, bed and breakfast, guest houses and rented accommodation.

Advertising and Promotion

The cost of promoting your business such as advertisements, websites, networking club memberships, and directory listings.

Auto Expenses

‘Normal’ (such as maintenance, wear and tear) expenses on cars that are an asset on the balance sheet are deductible.

Where expenses have been incurred that were unnecessary, for example, having alloy wheels fitted for aesthetic reasons, then this is not claimable. These ‘unnecessary’ expenses would be deemed as a benefit in kind for the employee.

Bank/Finance Charges

Bank charges on company accounts are claimable.

Books and Journals

Trade magazines, periodicals and books relevant to the business are allowable.

Business Entertaining

Expenses that are considered to be business entertainment

• Provision of food and drink

• Provision of accommodation

• Theatre and concert tickets

• Sporting events and facilities

• Entrance to clubs and nightclubs

• Use of capital assets such as aircrafts and yachts for entertaining

Cell Phone

If the invoice for the cell phone is in the name of the business then it is a deductible expense, even where there has been a ‘reasonable' amount of personal calls made.

Charitable Donations

A gift of money made by a business to a charity may be claimed as an expense.

Computer Hardware

Cheap computer hardware, such as a keyboard or a mouse, can be claimed as an expense, but a new desktop or laptop should be filed as a capital expense.

Computer Software

Software is an allowable expense

Employee Benefits

Insurance

Insurances that are for business purposes may be claimed. There are many policies available.

Interest Payable

Interest Charges on Company Credit Cards and Bank Accounts is treated as an expense to the company.

Internet & Telephone

If the invoice is made to the business, then often the whole expense is deductible.

If a only a proportion of usage is attributable to business then a suitable proportion of the expense may be allowable.

Leasing Payments

Legal and Professional Fees

Legal costs incurred for solely business purposes.

Licenses and Permits

Meals

Subsistence expenses are those paid for lunches and evening meals. There are often certain conditions that have to be met to make them allowable expenses.

Meal allowances are a valid expense for contractors – when it is a travel expense. To be allowable a meal allowance has to be an expense of travel.

You can claim for a meal allowance or actual meal costs whilst you are working at a remote site, away from your normal place of work. Or when staying away from home overnight. Even if you are a contractor, regular daily claims for meals are not an allowable expense, as this is part of a daily work routine. So unfortunately, generally daily food intake is not an allowable expense.

Contractors who have limited companies should only deduct receipted food expenses. When your work situation obliges you to ‘eat out’, or when you cannot get home to eat, you may deduct food expenses with receipts. It is important and ideal to ensure that you keep the receipts. If questioned at all in the future by HMRC, receipts will provide documentary evidence to support these claims.

In summary, a contractor that makes a business journey that qualifies for tax relief, then the expenditure on meals purchased can be an unavoidable extra expense of having to travel and therefore a meal allowance cost. As a result of this employment, extra expenditure is incurred and then that extra expenditure shall be allowable.

Miscellaneous

Miscellaneous is a category used to describe anything that won't fit easily into another category. It should be be sparingly as it's preferable to categorise expenses into one of the other recognised categories.

Office Costs

If the business rents an office then the costs, and associated costs incurred in making the rental, may be claimed.

Office Equipment

Cheaper office equipment may be claimed as an example

Other Computer Costs

Repairs, maintenance, support contracts and upgrades can be treated as an expense.

Pension/Retirement Plan

Company paid pension contributions for the benefit of an employee or director.

Postage

Postage costs

Printing

Printing of letterheads, brochures, business cards and proposals can all be accounted for as expenses.

Staff Entertaining

Including costs of Christmas parties or other staff events.

Staff Training

Training courses that are relevant to the business are allowable. If a person who is in the business of IT consultancy has undertaken a course in plumbing, then the expense is not allowable.

If that person did become a plumber and started a new business or changed the current business’ trading category to that of a plumber, then the cost of the pluming course may be allowable as a set up expense.

Stationery

Includes general office supplies such paper for printing, pens, envelopes etc

Subscriptions

Fees paid to professional corporations relevant to the trade of the business organisation.

Travel

Travel expenses may include:

• Gas (in total where the company has a company car)

• Public transport

• Motorcycle mileage

• Bicycle mileage

• Car mileage

• Air fares

Use Of Home

Where a worker uses part of their home for business, a proportion of the house cost based on the space used for the business and the hours it is used for business.

Rent and rates

Office rent

Web Hosting

Web Hosting expenses are allowable if they are for the exclusive use of a business website

Cost of Sales

Commission Paid

Commission payable to a person or company who had assisted in the finding of a contract for a company.

Cost of Sales

Any purchases made in order for a sale to have happened, such as an item that is resold.

Materials

Materials purchased for the business

Subcontractor Costs

The costs of another parties contribution to the sale

Capital Assets

Purchase of Capital Asset

A capital expense is an item purchased for the business that has a ‘useful life’ longer than the time at the point of supply. The expense of a telephone call is ended at the end of the call, but the expense of a computer is actually spent over the useful lifetime of the computer.

This guide was put together with the help of BFCA Limited Chartered Accountants and Tax Advisers.