One of the most common questions I get asked is "Can I claim this?" 'This' being items ranging from a pair of Spanx (yes really) to school fees, football season tickets, workwear, christmas parties....the list goes on.
So, below is the Mint Green small business guide to claiming expenses....hope it helps!
Tip #1 - The golden rule
So, if you are a sole trader there is one golden rule...the expense MUST be 'wholly and exclusively incurred for the purposes of the trade in question' and must be revenue expenditure. This means the expense is consumed at the point of payment such as fuel, insurance, etc - so doesn't include capital expenditure on things like equipment...more details on that another time.
Remember you can only claim for the business element of of the expense so, if for example, you have a car that you use for business and personal use you can only claim for the business proportion.
Interestingly for employees and directors of a limited company it's slightly different it must be 'wholly, exclusively and necessarily incurred. This puts more emphasis employees (including directors) to claim expenses that are necessary for the business.
Tip #2 - Allowable expenses
The list of allowable expenses is quite extensive and of course some will be specific to your business but in general you can claim for:
Cost of goods for resale or providing services
Wages, salaries and other staff costs
Car, van & travel expenses
Rent, rates, power and insurance
Phone, stationary and other office costs
Marketing & Advertising
For a full list visit HMRC expenses if you are self employed page and HMRC Employee expenses if you are an employee or a director.
" HMRC - the expense MUST be 'wholly and exclusively incurred for the purposes of the trade in question"
Tip #3 - Some common myths about expenses
There are also some 'urban' myths about expenses which you need to be aware of.
For example: 'Entertaining clients, suppliers and customers'. Whilst you can claim this as an expense for your own employees (within limits) a popular misconception is that entertaining clients can also be claimed as an allowable expense. It can’t. Event hospitality is another disallowable expense.
Training courses can only be counted as expenses if the training course in question furthers your understanding and skills in the area that you work in and is seen as being essential to your job. So if you want to retrain and start a completely new business it's not something you can claim.
Some courses may also be deemed not relevant to your business, so it is always best to check with your bookkeeper or accountant that the course you wish to study is eligible.
Capital repayment of loans, overdrafts or finance arrangements cannot be claimed as allowable expenses.
Donations to political parties or charities aren’t allowable (sponsorship can be), neither are gym membership fees. Stock or products that you take from your business for personal use/consumption aren’t allowable and you cannot treat yourself to a daily meal-deal on your business. There really is no such thing as a free lunch when you’re a sole trader
Tip #4 - Simplified Expenses
For small business simplified expenses might be an easier way to claim. These can only be claimed by sole traders and could be for use of a vehicle, working from home or living on business premises.
For example you can claim 45p per mile* for the first 10,000 miles and then 25p per mile* thereafter. This re sets for each tax year.
For using part of your home for business you can claim a flat rate, for example, for 25-50 hours of business use per month you can claim £10 per month. This increases if you work longer hours at home.
There is a simplified expenses calculator on the HMRC website at - Check if simplified expenses could save your business money - GOV.UK (www.gov.uk)
Tip #5 - And finally....
Knowing just a little bit about expenses can go a long way in helping your business succeed but it is a very complicated subject with the rules changing on a regular basis and as a small business you want to make sure you are claiming everything you can. So, if you would like to arrange a chat I would be happy to help contact hello@mymintgreen.co.uk or book a meeting here
* Figures correct as of April 2023
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