What Business Expenses Can I Claim as a Limited Company?
Whether you are a seasoned expert managing your own limited company or you are just starting to build your own limited company for the first time, sometimes there are business expenses that are unclaimed. Because of this, it is possible that you are paying more tax than you should. This article can help you in making the most of your tax relief.
Regardless if you have a big or a small company, one of the biggest parts of running a business is being keen with your expenses. If you want your business to be tax-efficient, then the simplest way to do it is to claim for your business expenses. This can decrease your earnings and as a result, it can lessen your Corporation Tax payments. If you will claim every allowable business expense, then you can ensure that you don’t have to pay more tax than you have to.
Always remember the general rule which is expenses should be exclusively, entirely, and necessary for the business only. However, the rules of HMRC can sometimes be complicated and most often they are based on certain ideas including being fair and reasonable when claiming expenses. Sometimes this can also affect the amount that you pay for your personal tax.
Here, we will give you a list of all the expenses that you can claim as an owner of a limited company. However, it is not just about understanding what you can claim but knowing how you are going to actually claim it. Do you simply keep a list or save all your receipts in a box? Ultimately, there are a lot of methods that you can use, however, it will depend on the type of your expense.
If you need some help in claiming your expenses or perhaps with your limited company accounts, then you can always make an appointment with an accountant.
What is Tax Relief?
The allowable business expenses for limited companies can help in reducing the profit and consequently reduce the Corporation Tax that you need to pay. Hence, if you have more allowable expenses, then you will have less taxable profit and at the same time, you will have less tax to pay.
In order to keep track of your expenses properly, you have to keep precise records of everything. Also, keep in mind that you are legally obligated to save these records for at least six years.
Also, you have to consider that HMRC rules can sometimes be complicated and more often they are based on the concepts of being fair and reasonable when it comes to the expenses being claimed. If you are having some doubts, then you can always contact an accountant.
How Do Limited Companies Claim Their Expenses?
The company’s expenses can either be paid by the company’s account or by your personal account, which is also known as a reimbursed expense. It is vital that you should keep a precise record of all the reimbursements that you’ve made to yourself.
It is also possible that your employees will claim expenses, hence, it is recommended that your company should have an expense form and policies. Employees should be aware of how much they are permitted to spend and in what circumstances. At the end of each month, these forms should be collected and filed. It is also important to remind your employees that all the receipts should be kept since it will be used for reclaiming any expenditures.
How to Keep a Record of My Limited Company Business Expenses?
Monitoring the business expenses of your limited company is very important. For instance, for business mileage, you must have a breakdown of all your travels as well as the mileage. If not, then there is a possibility that HMRC will not approve your claim.
We recommend that you should record all your business travels and mileage on a spreadsheet. Keep this up-to-date all the time throughout the year. If you want to make a tax relief claim for the fuel of a company-owned vehicle, then you should keep all of your receipts.
Also, you can claim tax relief for other business expenses as long as they are necessary for running your limited company. The key is you have to ensure that you have a record of everything so you don’t miss anything. Unlike mileage, you do not have any limit on the amount for supplies as long as they are reasonable.
If you do not have any online accounting software, then you can use a spreadsheet in monitoring the cost of your supplies and other expenses like travel and subsistence. Also, there is no need for you to record every item separately. For instance, if you have purchased 10 boxes of pens at £3 each and each box contains 100 pens, you only need to record the item which is 1000 pens and the total cost which is £30. However, you should keep all the receipts for each purchase. These receipts must be kept for a period of six years after you have filed your returns. This is because it is possible that HMRC will conduct an investigation within this time.
If you’ve been away for the day, then you can claim for the cost of your lunch as long as you have worked for more than five hours. You can even cover the cost of your dinner if you have been working up to ten hours.
Also, always make sure that you keep all your receipts for everything. It is also recommended that you log all your expenses in your spreadsheet or accounting software. In this way, you can always have a record of the date and amount in case HMRC will conduct an investigation on you. Additionally, HMRC will feel suspicious about excessive usage of taxis, most especially if they are deemed unnecessary. For instance, the trip is only very short.
There are different ways of storing receipts but it is always a good idea to store all the paper copies in a safe place and back them up digitally. You could use your phone in taking a picture of the receipts. Paper receipts will fade but your digital backups will stay pristine forever. You can use a mobile app or manually scan them to record all the details.
Accountancy Fee Charges For Limited Companies
Your limited company can claim tax relief for the total cost of accountancy fees as long as all of the accountant’s time is spent only on your company’s transactions. In case the accountant is working on your personal matters like making your personal tax return or the accountant provided you with some advice, then this can still be included in your accounts however it will be taxable to you personally and should be recorded as a “benefit in kind” (BIK).
Additionally, for the 2019/20 and 2020/21 tax years, your company will have to pay National Insurance Contributions at a rate of 13.8% on the BIK.
Accommodation Expenses While On Business Travel
When you are travelling to a temporary location for business purposes, then you can claim for accommodation expenses as long as the expenses are not excessive and very reasonable. Most likely HMRC will question you for excessive claims for apartments with multiple bedrooms or expensive hotel accommodations such as staying on the Ritz.
Business Mileage Expenses
If you have been using your personal vehicle for travelling to a temporary place of work and you have paid for the fuel then you can claim this back from your company.
Personal vehicles used for travelling to a temporary work location can be claimed depending on the type of vehicle and the distance being travelled. For cars and vans, the rate is 45p for the first 10,000 miles in a given tax year and 25p for every mile that exceeded 10,000 miles. For motorbikes, the rate per mile is 24p for any distance travelled. Finally, for Bicycle the rate per mile is 20p regardless of how far or near the distance is.
One of the best things about this is that the business mileage expenses can help in reducing the Corporation Tax that you have to pay. But aside from this, it can also give you the chance to reimburse yourself on the amount being claimed.
If the vehicle is owned by your company, then the only thing that you can claim is the cost of fuel.
Car, Van and Travel Expenses as a Limited Company
Typically, your travel expenses are deductible provided that the following conditions are met:
The travel costs will be paid by you.
Your travel is essential for your work. For instance, your presence in the location that you are travelling is necessary.
The travel that you undertake should not be an ordinary commute. HMRC describes commute as a journey that you’ve made from your home to a permanent workplace. Some of the allowable business expenses that you can claim include fuel, vehicle insurance, parking space, vehicle licence fees, hotel room accommodations, breakdown coverage, hire charges, repairs and services, as well as bus, train, air and taxi fares. Meals on overnight business travels are also included.
However, there are some things that you can’t claim including fines, travel costs that are not business-related, as well as travels from home to work.
Charitable Donations as a Limited Company
There is a way that your limited company can pay less for the Corporation Tax. All they have to do is give to charity. This donation can be in the form of money, property, land, shares from other companies, sponsorship payments, trading stocks, equipment, employees (on secondment), etc.
In order to claim tax relief, you need to deduct the value of your donations from the total profits of your business. This should be done prior to paying your tax.
Childcare Costs Expenses
There are two types of childcare costs expenses. These are the Voucher Scheme and the Tax-Free Childcare Scheme.
Unfortunately, the Childcare Voucher scheme has been stopped by the government on October 4, 2018, and they will not accept new participants anymore. If you have set up your Childcare Voucher Scheme prior to this date then you can continue to use the scheme.
Tax-Free Childcare Scheme
A new Tax-Free Childcare scheme designed for parents and carers was launched by the government in 2017.
Bear in mind that your limited company will not be able to offer your employee with childcare using the two schemes simultaneously. It should only be either one of them.
Christmas Party and Staff Event Expenses Through Your Limited Company
It is possible that your company can host a yearly event that is tax-free. For instance, an annual Christmas party. Just make sure that you meet certain conditions. You can let your employees invite their partner, however, the expenses should not be more than £150 per head inclusive of VAT. This event should only be intended primarily for the staff of the company. For instance, the cost of one director is £150. If he brings along his partner, then it would become £300. This amount is just acceptable.
On the contrary, if the ones that are attending the event are not mainly employees, then it would be hard to prove that the main objective of the event is to entertain its employees. You need to consider that the £150 amount is the limit for a given year. Hence, it could cover multiple events for employees.
With some limitation on the exemptions, expenses for business entertainment or gifts are not permitted as a deduction against profits, regardless if you think that this is a real expense of your trade or business. Consequently, tax relief for entertainment is not allowable.
If you’ve paid for the cost of business entertainment with your own money, then it is possible that you can claim this amount in the execution of your duties as a director. Since these expenses are not allowable in the company profits, hence its net effect is just similar to not being able to claim the expenses after all.
Equipment Expenses For Your Limited Company
As a director, the cost of everything that is essential and necessary to the performance of your duties can be claimed for tax relief. This includes software, printers, computers, cabinets, etc. Although it may seem that this is a dual purpose yet this is allowable since it is a consequence of a business requirement. Provided that its personal use is unimportant it will not be considered as a “benefit in kind” and there is no need for you to pay personal tax for it.
Eyesight Tests and Glasses or Spectacles
It’s fine to claim for vision tests as long as it is essential for the initial or extended use of visual display equipment when performing your duties. However, you are not allowed to claim for glasses or contact lenses except if they are prescribed and will be used on your work. For instance, glasses that are specifically designed for monitor or screen.
Fees and Expenses for Establishing Your Limited Company
The money that you spent in setting up your limited company can be considered as business expenses and can be claimed for tax relief. This includes all the necessary expenses such as printing, equipment, etc. You can also claim for accountancy fees as well as any compulsory organisation costs.
Fixed Assets and Selling of Fixed Assets
Items that are bought mainly for business use can be considered as business fixed asset. For instance, computers, laptops, furniture, phones, etc. In case the asset is already old or cannot be used anymore then you may decide to sell it.
Whether you decide to keep on using a fixed asset, sell obsolete models or scrap them, you have to inform HMRC. This is to ensure that everything is accurately accounted for every year.
General Office Purchases for Your Limited Company
Any minor purchases that are exclusively, fully, and necessarily used for the performance of your duties can be claimed as long as you have all the receipts for it. For instance, office stationery, computer consumables, postage, etc.
Gifts and Trivial Benefits From Your Limited Company
There is no need for you to pay tax on gifts or benefits for your employee as long as certain conditions are met. It should not be in the form of cash or a cash voucher. Its cost should be £50 or less. It should not be found in the terms of their contract. It should not be a reward for the recognition of their work or performance.
Also referred to as “trivial benefit”, there is no need for you to pay tax or National Insurance for it. Furthermore, you are not required to inform HMRC about it.
Otherwise, if all of these criteria are not met then you may have to pay tax on those gifts or benefits.
Medical Insurance (Healthcare) Expenses Through Your Limited Company
Some companies offer financial support for their employee’s medical insurance. This is considered as a “benefit in kind” and it is the obligation of the employee to pay for its personal tax. However, the company is responsible for the payment to National Insurance Contributions at 13.8%. This rate was used for the tax years 2018/19 and 2019/20.
It is possible that other companies will provide a yearly check-up as well as medical insurance for employees who are working abroad and claim tax relief.
Pension Payments Through Your Limited Company
After your company has acquired a contract with a pension provider then they can pay for your pension. Consequently, the company will receive full tax relief for it since this is an allowable business expense. But there is a certain limitation. You can only contribute up to £40,000 to a pension scheme free of tax. This can either be paid by your company or by you personally.
If you need some advice or more details on this matter, then you can always talk to a financial advisor.
Other allowable expenses include professional subscriptions including membership of a trade body as well as the registration needed so you will be able to trade. Just make sure that they are approved by HMRC and they are essentially relevant to your employment. In case they are not directly important, then they cannot be covered. For instance, if you are a plumber then you cannot be covered for the membership of your local golf club regardless if you think that it may help your business.
Another allowable expense is the salary given to you for working as an employee or as a director of your company, including any National Insurance Contributions (NICs). You can even choose to provide a tax-efficient salary up to the certain National Insurance threshold, which means before you start paying NICs. If you want a more tax-efficient salary, then you can choose a much lower monthly salary, since after you have crossed the NI threshold you will start paying NICs.
Mobile Telephone, Landline And Broadband Expenses As A Limited Company
Your landline phone contract is considered as an allowable company expense provided that it is for business use only. It should indicate that this is completely for business only.
When it comes to mobile phones, the contract should only be between the mobile phone provider and the company. All costs can be claimed as an allowable expense by the company provided that this condition is met.
If the total amount of your personal phone bill is paid by your company, then you are required to pay a certain amount for the “benefit in kind” (BIK) on the overall amount of the bill. Your company will be liable for the payment of the National Insurance Contributions at 13.8%, this figure is based on the 2018/19 and 2019/20 tax years. It will be based on the same amount, however, the cost of any identified business calls will be deducted.
If you use your landline phone or personal mobile phone for business calls, then this can also be considered as an allowable expense as long as you can prove that it was a business call. In case you are VAT registered, then you can also recover the VAT portion of your business calls. However, you can’t recover the line rental element since you will have to incur this cost anyway.
Sometimes it is highly difficult to segregate the cost of business calls since most mobile phone operators offer package call costs, for instance, up to 1,000 free monthly minutes. Most often, it also occurs on landline phones. Unfortunately, if you won’t be able to segregate your business calls from your personal mobile phone usage, then you won’t be able to make a claim. This is because of its dual purpose and any business calls that you made will not incur any additional cost since you have already paid tax for your personal calls.
If you were doing some work from home with the use of your residential broadband, then you won’t be able to make a claim if the broadband already exists, except if there is a clear method of separating the business element from your personal use. By having two separate broadband lines, you can clearly indicate that one line is entirely dedicated for business.
If you do not have any current broadband contract at home, however, you require internet access in carrying out your business, then the costs can be recovered from your company. Also, there will be no “benefit in kind” charges that will occur.
Travel And Subsistence Expenses As A Limited Company
If you need to travel because it is necessary for your work, then you are permitted to claim tax relief for the money that you have spent on your food and other expenses for your overnight stay. You can claim tax relief for the cost of important things such as parking fees, public transport costs, food and drink, hotel accommodation (in case you need to stay overnight), business phone calls and printing costs, as well as congestion charges and tolls.
However, you won’t be able to make a claim if you are travelling to and from work except if you are travelling to a temporary place of work.
Training Expenses Through Your Limited Company
You may be able to make a claim for training if it is directed towards enhancing the skills you apply in your work. In addition, you can also claim travel and accommodation while you are participating in a training course.
Most often, HMRC will not allow expenses for courses such as MBAs. This is because it provides new skills and knowledge instead of improving your current skills. Although in some circumstances these are permitted provided that you can show that they helped you in reinforcing or enhancing your present knowledge and skills.
Using Your Home As An Office For Your Limited Company
If you are working on your limited company, then it also means that you will be working from home. Fortunately, HMRC permits you to claim £4 every week without the need for any detailed records. This is equivalent to £208 each year. Another benefit is that HMRC does not consider this as a benefit in kind, so there is no need for you to pay any tax on this when going through your Self Assessment.
Take note that there are no rules, as long as you will be able to prove that you frequently spend time performing your work in this office space. Hence, you just can’t use your home office for a small piece of job, while most of the work is performed on-site or at customers’ offices.
Also, the equipment that is necessary and required for your professional responsibilities can be claimed for tax relief. You can also claim for reasonable tax relief as long as the cost is used for furnishing or equipping your office, for instance, bookcases, furniture, cabinets, chairs, etc.
Renting Your Office To Your Business
You are allowed to rent your personal workspace in your home to your limited company and consequently claim this as an expense. However, take note that you have to state these earnings on your Self Assessment. Hence, you will be subject to further taxes after you’ve deducted your expenses.
Nevertheless, there are certain conditions that HMRC will require from you. This includes owning a property, making sure that the rent you set is reasonable while ensuring that any amount more than £208 per annum is recognised as rental expenses. Also, you must make a rental agreement between your limited company and yourself. Finally, you need to make sure that the rental agreement declares that the rent is intended for using the office at specific times of the day and there are no other parts in the house used.
The rules of HMRC in this particular area are complicated, therefore, it is expected that the computation is fair and reasonable. It is advisable that you should speak to an accountant before creating a rental agreement between you and your company.