You can’t normally claim tax relief on business expenses you incur through a another business, but there may be occasions when the expense is charged to a different business. This can happen for all sorts of reasons, such as one company supplying materials to the other, or it could be an accounting solution to share expenses if you run both businesses from the same location.
It’s crucial that you keep separate detailed records for each business so you can keep track of the income, expenses and profitability of each one.
We explore the essentials of claiming expenses to ensure you remain tax-compliant and efficient when running multiple businesses.
Claiming expenses from one business in another
The golden rule for claiming expenses is that they must be incurred ‘wholly and exclusively’ by the business. If you run multiple, separate businesses, you can charge costs between them – for example if one provides goods or services to the other.
Limited companies are separate legal entities in their own right, but even if you operate as a sole trader then it’s still best practice to keep the accounting records – and therefore expenses – separate for each business, even though there isn’t (technically) a legal distinction between each one.
Be very careful to make sure you don’t claim the same expenses twice!
It’s crucial you only claim the proportion of an expense which relates to the specific business activity if you’re dealing with any expenses relating to both personal and business usage, or across multiple businesses. For instance, if you’re claiming expenses because you work from home, you’ll need to make sure you only claim the bit which relates to your business activities, and that each business only claims the portion which relates to itself.
How do I move an expense from one business to another?
The idea of charging an expense from one business to another can be confusing when you own both, but think about them as if they were two totally separate businesses, with different owners.
With that in mind, you’ll just need to charge the other business as if it were any other customer that you provide goods and services to – usually by creating an invoice.
Treating each business separately
Along with keeping accurate records of every transaction and expense in each business, you’ll also need to justify why you’re claiming expenses between businesses. In short, you can’t just move money from one place to the other without keeping a record of why, and what for.
Failing to follow this process correctly could trigger alarm bells for HMRC because it could be seen as a way to reduce the amount of tax you pay overall, by moving expenses into the business where claiming them would have the most benefit. It can cause a lot of hassle and stress, and could even lead to a full audit of your financial records.
No matter which legal structure you use for your businesses, it’s important to treat each one individually, and keep their records separate.
Separate bank accounts
Having separate bank accounts for each business is a requirement for limited companies, but it will help any business structure make sure all expenses are tracked in the right place and avoid cross-contaminating funds.
Separate records
Each company’s expenses should be documented, categorised, and recorded separately to avoid confusion and overlapping information (e.g. transactions incoming and outgoing). That way, you can be certain that both businesses are operating compliantly.
Bookkeeping software
Look for accounting software that allows you to manage multiple businesses from one system. This streamlines the process of tracking and managing expenses for each business so there’s far less chance of error, omission, or overlap.
Fewer errors also mean less chance of overpaying tax by accident, so investing in great booking software is also a good way to protect your cash flow.
How an accountant can help you
To reduce your stress levels and the risk of mistakes, we’d recommend enlisting the expertise of a qualified accountant who can help you claim expenses for multiple businesses.
A skilled accountant will be able to help you understand which allowable expenses are deductible for each business and help make sure you’re maintaining proper documentation to support this.
Plus, they’ll make sure you’re operating in the most tax-efficient way possible, which includes ensuring you’re taking advantage of all applicable tax relief.
They will also familiarise you with the tax implications of each business structure (sole trader, limited company, partnership, etc.) if that applies to you. Different legal business structures have their own tax requirements, so it’s important to stay up to speed.
Find more resources and advice for your business on our website, or check out our guide to hiring the right accountant for you.
