Making the Most of Your Non Taxable Expenses
Posted 02 November 2011 - 06:37 PM
A guide to what you can and can't deduct for tax purposes
When running a business it is inevitable that you are going to incur expenses. Some of these expenses will be taxable, while others will be non-taxable or “allowable expenses”. Identifying these non-taxable expenses is very important, as they will help you to reduce your tax bill. All non-taxable expenses can be deducted from your gross profit at the end of the year, which leaves you with a smaller amount of net profit to pay tax on.
It is first worth noting that the expenses system is extremely complex. The HMRC guidance on expenses is over 100 pages long and doesn’t make easy reading. Few business owners manage to get it right without seeking professional help, but very often using an accountant will actually save you money in the long run. We would always advise that you don’t try to go it alone.
To give you an understanding of how the system works, we have set out the short guide below:
What expenses qualify as non-taxable or “allowable”?
Generally, if you can show that an expense was necessary for the running of the business, and was entirely for business purposes it will be non-taxable. Anything that could be deemed as for personal use or enjoyment would generally not qualify. Some examples of non-taxable expenses are:
Legal and professional fees (e.g. accountants and lawyers)
Finance costs such as bank charges and interest
Advertising, marketing and PR costs
Materials or goods purchased for re-sale
Any supplies used to deliver a service to a customer
Employee costs such as payroll
Benefits in kind paid to employees (e.g. private healthcare, pensions etc)
General running costs such as postage, cleaning, renting equipment, stationary and phone bills
Business travel and subsistence (this must not include commuting to and from work)
Premises costs (e.g. rent, rates, utilities bills and repairs)
The above list is a rough guide, but you can read the full HMRC guidance for detailed information.
What expenses will not qualify?
Anything that was not solely used for businesses purposes will be disallowed. This could include:
Personal expenses such as clothes, living costs and non-business travel
Entertainment (this excludes entertaining staff, which is allowable)
Depreciation of assets (but the purchase of assets can be covered by capital allowances)
If you are not sure about what you can and can’t deduct it is important that you seek professional advice from an accountant, or talk to HMRC, otherwise you risk paying the wrong amount of tax and potential fines.
For more useful articles, please visit our website!
The Momenta Team
Great value Fixed Fee Accounting Services
Visit us today for your Year End Accounts.
0 user(s) are reading this topic
0 members, 0 guests, 0 anonymous users