Businesses often struggle to decide whether or not they should claim certain types of expenses – but by failing to claim the expenses you are owed, you could be missing out on a considerable amount of money that could seriously impact your business.
Business expenses include things such as office equipment, rent, utilities, marketing, and other items. The amount you claim depends on the type of expense and where you live.
Wondering whether you should be claiming business expenses? Below, we take a closer look at all you need to know.
What are business expenses?
Business expenses can include anything from office equipment to rent, advertising, and even travel. They also apply to things like telephone bills, postage, and utility costs.
In order for you to claim business expenses, you must have an agreement with your employer that allows you to do so. This is usually in writing. If there isn’t one, then it’s up to you to prove that you had permission to use the given item.
You may be able to claim some expenses if you were using them for work purposes. For example, if you bought a computer for work reasons, you might be able to claim this as a business expense.
However, if you used it for personal reasons, you won’t be able to claim it as a business expense.
If you are unsure about what qualifies as a business expense, then check with your accountant or financial advisor.
How much can I claim?
The amount you claim will depend on how much you spend on each item. It’s important to keep track of these costs, because you don’t want to miss out on any money you’re due.
There are two main types of allowances: capital allowances, and allowable expenses. Capital allowances are based on the cost of the asset itself. Allowable expenses are based on the actual usage of the item.
- Capital allowance
A capital allowance is based on the purchase price of the item. In most cases, businesses only get to claim part of the purchase price. The remainder is considered a loan against future earnings.
For example, say you buy a new laptop for £1,000. You would normally be allowed to claim back £500. Any remaining £500 is treated as a loan against future earnings, which means it doesn’t count towards your tax bill.
- Allowable expense
An allowable expense is based on the actual usage. So, if you buy a new printer for £100, you would normally be allowed to deduct £50. Any remaining £50 is counted as a deduction against your taxable income.
Types of business
There are different types of businesses, and each of these has its own rules regarding which expenses you can deduct – it is important that you are aware of your business model before making your expenses claim.
- Sole traders
If you are a sole trader, you can claim all of your business expenses. This includes things like office supplies, printing, marketing materials, and more.
If you are a partnership, you can claim only those expenses that relate specifically to your role within the company. For example, if you are the managing director, you can claim any expenses relating to your position within the company.
If you run a corporation, you can only claim certain expenses. These include things like salaries, wages, dividends, interest, and depreciation.
Which items should I claim?
There are many different types of expenses that you can claim. Some of the more common ones include:
- Office equipment
Claims can be made for office equipment such as computers, phones, printers, fax machines, and photocopiers.
Advertising is another popular way to claim expenses. You can claim for things like newspaper ads, flyers, billboards, TV commercials, and radio spots.
Travel expenses are commonly claimed when employees go away on business trips. These can include flights, hotels, car rentals, meals, entertainment, and so on.
- Telephone calls
Telephone calls that are used for business purposes can also be claimed; you may even be able to claim the cost of your phone contract.
- Meals and entertainment
If you are required to provide a meal or entertain a client for business purposes, you may be able to claim the cost of this back on expenses.
When do I pay tax on my expenses?
When you pay tax on expenses, it’s called “taxation.” Taxes are paid at the end of the year. This means that you’ll need to file your return before April 30th of each year, or risk having to pay hefty fees and penalties to HMRC.
What happens after I file my return?
After you’ve filed your return, the government will review it. They’ll ask you questions about any items they think you may have missed. For example, if you forgot to claim certain expenses, they might ask why you didn’t.
If there are any discrepancies between what you reported and what you actually spent, they’ll contact you to discuss them.
You will also receive an annual notice from HMRC telling you whether you owe any additional taxes.
Can I use a professional accountant?
Many business owners prefer to turn their expenses over to the experts, and it is perfectly fine to use a professional accountant in Ipswich. An accountant can help you with everything from filing your taxes to helping you set up your books.
They can even help you prepare your financial statements so that you know exactly how much money you’re bringing home every month.
How much can I deduct from my income?
The amount of deductions you can take depends on your personal circumstances. However, most people can deduct around 50% of their total income. If you earn over £150,000 per annum (or £30,000 if you’re married), then you can deduct 100%.
The amount of money you can deduct varies depending on the type of business you run. If you work
for yourself, you can only deduct expenses related to running your own business – for example, if you make £10,000 per year, you can only deduct £5,000.
Can I claim expenses if I work from home?
It’s possible to claim some expenses related to working from home. These include things like Internet access, telephone bills, and postage costs.
However, you won’t be able to claim for things like travel expenses, advertising, or anything that isn’t directly related to your job.
Some of the main expenses that can be claimed when working from home include:
- Heating and utilities
Electricity, gas, water, heating oil, and other utilities are generally considered as part of your rent. So, if you live in rented accommodation, you can usually claim this expense against your rental payments.
- Internet access
Most ISPs charge monthly subscriptions. Some allow customers to sign up for a one-off fee. In either case, you can deduct the cost of your subscription from your taxable income if you work from home; it is argued that this expense is essential to allow you to do your job.
- Postage costs
If you send out invoices physically through the post, you can deduct the postage costs associated with sending them.
- Council tax
If you are working from home, you can also claim for council tax support. This means that you can deduct the amount you pay towards your local council, which can be a considerable expense.
Claiming expenses can be a great way to boost the profit of your business, and ensure that you get the money and support you deserve. If you have questions about what you can claim, it is worth seeking advice from an accountant or financial adviser, such as an expert tax return accountant in Ipswich from our own team. We also provide other services such as Suffolk business advice and payroll services if you need support.