Allowable Expenses For Tax Returns
Costs incurred in your business activities or on behalf of your employees that you can claim for and deduct from your tax liability get classed as an allowable expense.
The Inland Revenue has a vast list for mileage claims and general travel, but there are others that you can deduct for tax purposes.
Personal Expenses Allowance
Here's a brief list of deductions you can make against tax. The rules are not hard and fast, so if you are in any doubt, it's best to speak with your accountant or telephone the Inland Revenue for a decision.
Most self-employed people may find it hard to separate personal and business expenses but the general rule of "is this expense for my business" is to ask "was this necessary to generate income for my business".
Most companies have an expenses policy, but this is more geared towards what they'll reimburse as a business rather than what you can reclaim against tax.
Many companies may offer a "per diem" expenses regime where people get a daily allowance and must account for the "float" they have and make claims.
This method operates in much the same manner as normal expenses. However, you need to manage the budget yourself rather like a mini bank account or cash account accounting for expenses together with the claims you have made.
Employees and Directors of a company can claim vehicle mileage for their private cars at maximum rates set by HMRC - these are not the same as company cars. The current rates are:
Mileage Allowances by Vehicle 2018/2019
|Vehicle Type||First 10,000 Miles||Subsequent Miles|
|Cars and Vans||45p (40p before 2011 to 2012)||25p|
From April 6th 2011, the mileage allowance for the first 10,000 miles increased to 45p.
Travel is an area that HMRC looks at in detail but almost all travel related costs can be claimed back including:
- Airline flights including taxes and carrier-imposed charges.
- Public transport including bus, tube and train fares.
- Parking fees and parking fines.
- Accommodation expenses including hotels, Airbnb rentals and general lodging.
This list excludes any fuel or maintenance as you should be claiming the mileage allowance above.
You can claim the cost of hotel accommodation and food subsistence if it's clearly for business purposes and you can show that this was temporary and not a permanent place of work - e.g., for meetings in other parts of the country or overseas.
You will need receipts. General subsistence can be claimed at a maximum £5 per day if you don't have receipts.
Entertaining is an area where HMRC leaves very little leeway in what you can claim back. You can claim for a Christmas Meal once per year so long as the cost is no more than £150 per head.
Home as Office Charges
If you work from home and use part of your house as an office, you can claim back in your accounts the % of space that your office takes in your house. The applicable charge should include all the associated costs such as utility costs (gas, electricity, water etc.) and mortgage or rental payments.
When calculating the percentage charge, be sure that the amount is reasonable and that the office used is only for work purposes. For example, it's not the kid's playroom with a computer in the corner. The HMRC website contains the full list detailing all home as office expenses.
Allowable Business Expenses
Like any other business, you can claim for standard operating expenses during the course of the year running your company.
Example Costs Allowable Against Profits
The standard costs deductable before paying tax include:
- Wages and salaries
- National insurance and income tax paid under PAYE
- Medical and health insurances although these are also declared as a benefit in kind if you're a director of a company in your P60
- Professional indemnity insurance
- Public liability insurance
- Telecommunications costs including mobile and internet access
- Bank charges and fees
- Books and magazine subscriptions
- Professional subscriptions to trade bodies
- Mortgage repayments
Detailed Cost Headings
The Inland Revenue HMRC have a massive online manual that covers every type of expense imaginable and whether or not you can claim it as allowable.
They cover the following topics:
- Bad and doubtful debts
- Compensation and damages
- Crime-related expenses
- Dilapidations under a lease
- Employee share schemes
- Employee benefit trusts
- Flood and erosion projects
- Gifts in kind and payroll giving
- Guarantee payments
- Hire purchase and leasing
- Insurance products
- Interest paid and received
- Incidental costs of loan finance
- Land remediation relief
- Losses on ordinary activities
- Overseas taxes
- Patents & royalties
- Pension schemes
- Pre-trading expenditure
- Professional fees
- Rent and rates
- Repairs and renewals
- Staffing costs
- Security expenditure
- Subscriptions and membership fees
- Travel & subsistence
You can wade through this manual online here.
Expenses Not Allowable Against Tax
Generally, if it's not work related, then it is not allowable against your tax liability. The main item that HMRC will not allow is entertaining and most companies also exclude this from their expenses policy.
Uniforms are an area which is not concrete. If the uniform you purchase for your work can satisfy the condition "incurred wholly and exclusively for the purposes of your profession", then you can claim. The Inland Revenue have strict rules here.
Other data sources: