Your new business is up and running and you are now incurring costs and you are unsure what is allowable as a tax deduction. This article is about certain overhead expenses you can claim as business tax deductible expenditure.
Use of Personal Vehicles
If you are using your own vehicle for your business then depending on the business format you have chosen you may wish to bring the vehicle into your business. This enables you to claim a proportion of the running costs of the vehicle eg fuel, insurance and servicing but you must also keep a record of business mileage so that you can determine the share of the running costs that are allowable for tax purposes.
The purchase or introduction of the vehicle into your business may also allow you to claim a capital allowance deduction. The capital allowance is related to the purchase price or value at introduction to the business.
If you have chosen a limited company as your business format the introduction of your personal vehicle into the business may not be the best option as there are ‘benefit in kind’ regulations that would give rise to a taxable benefit on the user of the vehicle for their personal use of the company vehicle. The use of an approved HMRC mileage rate maybe a better option.
Use of Home as a Place of Business
Working from home is an excellent way of starting a new business as it keeps set up costs to a minimum and you will incur lower overheads whilst establishing your business.
If you have started your business as a sole trader or partnership you will be able to claim a proportion of your property’s running costs as an office. The amount will depend on whether you decide to opt for simplified expenses, whereby HMRC allow you to claim a fixed amount each month based on the hours you work from home, or you can claim the actual increased running costs incurred as a result of your business being run from your home.
The capital cost of most business assets, eg computers, furniture, specialist equipment, is allowable as a tax deduction. However the amount allowed maybe spread over a number of years depending on the actual capital item purchased and the prevailing capital allowance legislation at time of purchase. Therefore careful timing of your purchases and/or your capital allowance claims is important.
Purchase of Stock
Items purchased by your business to be sold onto customers are called stock and the cost of these items can only be claimed as a tax deductible expense when the items are invoiced.
Wages, Salaries and Other Staff Costs
If you employ staff within your business you can deduct the cost of their salaries and wages, bonuses, commissions and employers National Insurance from your business profits. If your business is a limited company then any salary you pay yourself is deductible but if you are not a limited company but a sole trader then money you pay yourself is not an allowable business expense.
Business Premises Costs
If you take on premises specifically to run your business from then the cost running costs of these premises is allowable as a business expense. This includes rent, business rates, insurances and utilities. If you purchase a business premise then this cost is treated as a capital expense and capital allowances maybe available.
Repairs and Renewals
If you carry out repairs to your business premises or equipment you use in carrying out your business then these costs are allowable for tax purposes. However, improvements are not allowable.
The fees incurred by your business in relation to the use of an accountant or bookkeeper in maintaining your accounts and records is allowable as a business expense. Similarly if you engage a solicitor to provide legal services in relation to your business these costs are also allowable for tax purposes.
Telephone, stationery, postage, computer running costs and internet charges are all allowable expenses.
If you are a sole trader and use a mobile and/or landline telephone privately as well as for business, you must keep a record of business and private calls. Only business calls can be claimed, you cannot claim for private calls.
Itemised bills can be used to work out your business use. You can also use the itemised bills to claim a proportion of the line rental.
Money spent on an internet connection (including broadband and wireless broadband) is allowable if you use the connection solely for business purposes. Where there is ‘mixed’ (business/non-business) use, follow the approach used for telephone rentals.
Clothing and Training Costs
The cost of normal clothes is not allowed as a business expense but if you require protective clothing or specialist gear to carry out your work then this is allowable.
The cost of training in a new area that is unrelated to your business is not allowable but costs associated with continuing professional development in relation to your business is allowable.