One of the most effective ways to monitor the financial health of a business is to keep track of company spending. These records will also come in handy when you claim tax reductions on allowable business expenses. An ‘allowable’ business expense is deducted from the income recorded on your tax returns. These deductions lead to a reduced annual tax bill. An allowable expense is an expense solely in service of the day-to-day running of a business. There are many purchases liable to be business expenses, but these purchases must meet certain tax return requirements to be allowable.
Allowable Business Expenses
The government’s HS222 form makes it clear what qualifies as an allowable expense when you file tax returns. The amount paid for goods intended for resale is an allowable expense, as well as payments to subcontractors. Neither of these can be used for private use. The wages, salaries, bonuses, benefits, and pensions of employees are all tax deductible. Vehicle and travel expenses incurred solely in service of the business are also allowable, including servicing, fuel, and insurance. This does not cover travel costs to and from home.
Costs on running work premises are also fit for many tax deductions. Rent, utility bills, and insurance costs, as well as repair and maintenance are all viable business expenses. This extends to office spending on equipment and stationery, as well as phones, internet, postage, printing, and software. Many business expansion measures are also allowable business expenses. These include print advertisements, web expansion, and free samples.
On the purely financial side of things, interest on bank and business loans are also eligible for deduction from tax. So too are bank, overdraft, and card charges. However, the repayment of loans and overdrafts themselves is not allowable. Fortunately, you can claim the services of a business accountant, solicitor, surveyor or other professional as a business expense, with some exceptions.
Tax Return Requirements for Allowable Expenses
The golden rule for claims is to focus only on costs that are exclusively for business purposes. Dual business and personal purposes will not be allowable.
Additionally, you should record high-value purchases, on machinery and computers for example, as company assets rather than a normal business expense. Annually, you will list the depreciation charges on these items as a company expense. Unfortunately, these depreciation charges are not themselves an allowable business expense.
Annual Investment Allowance (AIA) is the scheme that covers new large machinery and computer equipment bought for business use. This does not include parts of buildings themselves, like doors and mains water. AIA does however cover integral features like air conditioning and lifts.
Business expense claims are a complex topic; every allowance comes with its own qualifications and rules. If you need advice to file tax returns or consolidate your expense claims, consult an accountant today. The sooner you start tracking business spending, the sooner you can reap the tax benefits of your business expenses.
