Basically, you can claim for most expenses that are incurred wholly and exclusively for the purposes of a trade. Unfortunately, most of the decision making by HMRC on this topic is guided by tax law, which has been inconsistent.
That aside, the following will provide you with guidance in areas where the outcome is reasonably predictable:
- Professional fees, your accountant for example: allowable in most cases unless the fees relate to:
- The purchase of a property or other business asset (in which case they can be used to reduce any Capital Gains Tax liability when the asset is sold).
- The costs of settling tax disputes.
- Fines for breaking the law, for example, parking or speeding fines.
- Entertaining: even though entertaining produces new business, all expenditure under this category is deemed a non-allowable expense for tax purposes.
- Motoring costs: the costs of running a business car for business related journeys are allowable. The costs of private motoring with a business vehicle are not. Home to work journeys are generally considered private.
- Travel expenses: All business related travel costs are allowable. Home to work travel costs are not tax allowable.
- Bank and credit card charges: bank charges and bank interest charges on loans or overdrafts taken out for purely business purposes are tax allowable. The capital repayment of these loans is not.
- Cost of goods: goods bought for resale by your business, or that are consumed during the day-to-day business activities are tax deductible, goods taken for private use are not.
- Cost of assets: the cost of plant, vehicles and equipment purchased for business use is held on your balance sheet as assets. The cost is gradually written off against your profits by making a depreciation charge – this writes off the asset cost over the useful life of the asset. Even though this depreciation charge is a reduction in profits it is not allowed as a tax deduction. Instead, HMRC grant a capital allowance, which can vary from 8% to 100% of the allowable asset cost, or its written down value for tax purposes (if you acquired the asset in previous years).
- Bad debts: if a customer fails to pay an invoice and the debt is considered irrecoverable the sales value can be written off for tax purposes. Debts relating to assets or general provisions for bad debts are not allowable.
Obviously, this is only a sample of the range of costs and expenditure you may need to layout when running your business. If you are unsure if a future cost will qualify for tax relief, please call to discuss the matter.