You have to spend money to make money, which every business owner and self-employed person will tell you, so it is essential that you accurately calculate and declare your business deductions for costs. This will mean that you only pay tax on the profits you make, rather than all money coming in. Knowing what can and can’t be deducted as a business expense can often leave people in murky waters, so we have created a quick guide to the basics of business deductions, to keep you in the tax man’s good books.
What is a business deduction?
To put it simply, anything that you spend money on that you reasonably need to run your business, such as:
- Premises and utilities – that is your rent and rates paid on your office, shop or wherever you are registered to transact business from and the essentials such as heating, hot water, electricity etc.
- Transport – be that a company car, a van or even just train fares to see clients. This also includes parking, hotel rooms and meals for when away for business.
- Stationery and postage – yes, even items such as paper, pens and printer cartridges can be deductions, as well as stamps and postages for business correspondence.
- Clothing – if you wear a uniform or specialist clothing for your work, these can be deducted.
- Staff – not the people but the cost of having them, including salaries, pensions, bonuses and benefits.
- Stock and goods – anything for resale such as stock items and the raw materials for production, as well as the direct cost of producing your goods for sale.
- Professional help – as a business you will require legal and financial advice, and the good news is accountants, solicitors, surveyors and architects services can all be deducted.
- Insurance – this can include your premises, professional indemnity and for your vehicles.
- Marketing – such as leaflets, advertising, websites and other marketing collateral used to advertise your business.
- Subscriptions and professional memberships – these include magazine and publication subscriptions for specialist trade news and fees paid to trade bodies for memberships that your business requires.
What is off limits?
Whilst there are lots of expenses that can be deducted for business reasons, it is important to stay within the guidelines set out by HMRC. The following are a strict no-no when it comes to business deductions:
- Anything that isn’t for business use such as your home or personal phone, weekly food shop (you get the idea).
- Travel that isn’t for work such as weekends away or commuting to and from work. You also can’t deduct parking and motoring fines incurred, even if they occurred during work.
- Clothes that aren’t for work, like those new jeans or expensive shoes you really want.
- Domestic help such as nannies and carers are off limits.
- Anything bought for personal use and not resale.
- If you use equipment, the depreciation can’t be deducted.
- Loans, overdrafts and poorly calculated debts are also off the list.
- Entertaining such as wining and dining clients or other hospitality is also not allowed.
- And finally, any non-business essential payments or donations, be that to your political party of choice or favourite charity.
This is a basic guide and by no means exhaustive, it is always best to apply common sense if you aren’t sure on an item. If you are ever in doubt, speak to your accountant.
Submitting your expenses is simple, calculate your expenses to be deducted and complete your self-assessment tax return for the year. Whilst you should always keep a record of all of your spending, it is not necessary to send proof with your tax return, records are only required if HMRC request to see them, so better safe than sorry!