How to Claim Business Expenses
You're entitled to claim expenses that are incurred wholly and exclusively for the purpose of your business.
The benefit of claiming expenses is that they can reduce your tax bill and help you keep more of your hard-earned money within your company; this is because you can offset the sum of your expenses against your taxable income. However, claiming business expenses can be complicated, and it's important to understand what you can and cannot claim.
Firstly, it's absolutely crucial to keep accurate records of all your business expenses, including receipts, invoices, and bank statements. You should also keep a log of all your business mileage if you use a vehicle for work purposes.
By keeping detailed records, you'll be able to provide evidence of your expenses if HMRC requests it (which they can do, whenever they see fit!).
As an expense has to be incurred solely for the business, you can't claim expenses that are personal or have a dual purpose. For example, you can't claim for the cost of a suit that you also wear outside of work. However, you can claim for the cost of a uniform that you only wear for work.
Understanding Eligible Business Expenses
How to Know if an Expense Can be Claimed
To claim business expenses, you must meet the following criteria:
The expense must be exclusively used for the business and only the business.
The expense must be revenue in nature. This means that it must be an expense incurred in the course of your business operations.
The expense must be supported by valid receipts or invoices.
Remember: You can never claim expenses that are personal or capital in nature. Personal expenses being those that are not related to your business, such as clothing or groceries and capital expenses being those that are used to purchase assets that will be used for more than one year, such as equipment or property.
The Different Types of Deductible Business Expenses
There are various types of expenses that you can claim as tax-deductible. Here are some common examples:
Office expenses: This includes rent, utilities, and office supplies.
Travel expenses: Including mileage, parking, and public transportation costs.
Marketing and advertising expenses: This includes the cost of advertising, website development, and promotional materials.
Professional fees: Including the cost of hiring a lawyer, accountant, or consultant.
Insurance premiums: This includes the cost of business insurance, such as liability and property insurance.
Best practice is to incorporate a recording system, or use software, that allows you to efficiently and accurately log and track every expense incurred on behalf of your business. If you forget to keep receipts or invoices and have no other means of validating the amount, then you can’t claim it. That in turn means the tax that you have to pay will increase.
The Process of Claiming Business Expenses
As we’ve mentioned above, claiming business expenses is vital to the running of your business. Although people have different ways of organising their expenses, the three steps below will ensure that you log and claim them in the right way:
Keeping Accurate Records Throughout the Year
The first step in claiming business expenses is to keep accurate records of all your expenses at all times and across each of your employees. This means keeping the receipts, invoices, and bank statements that clearly show the cost and date of each expense. You should also keep a record of the purpose of each expense, so you can easily identify which expenses are business-related. As you can imagine, as your business grows so does the task of tracking all costs incurred - so it’s best to get a good system in place before you reach that point!
Filling Out Tax Forms
Once you have accurate records of your business expenses, you need to fill out the appropriate tax forms. This will usually include a self-assessment tax return or company accounts, which you can complete online or on paper. When completing your tax return, you will need to provide details of your business expenses, including the date, cost, and purpose of each expense.
Dealing with HM Revenue and Customs (HMRC)
After you have completed your tax return, you will need to submit it to HM Revenue and Customs (HMRC). If you have any questions or concerns about your tax return, you can contact HMRC for assistance. They will also review your tax return and may ask for additional information or documentation to support your business expenses. HMRC can (and will) audit your accounts and tax return in more detail if they feel that the information within is inaccurate; this can be a very time-consuming ordeal that you can avoid by ensuring your information is accurate each and every year.
For more information, or to speak to a member of our team to find out how we can help you and your business, contact us today on 01767 699996 or thecrew@blue-skies.tv.