The short answer to this question is no, tax is not an allowable business expense. This means you cannot claim tax relief on the tax payments you are required to make on your earnings.
Even though taxes themselves cannot typically be written off, the good news is that there are a whole host of other tax-deductible expenses that can help you save money.
We explore some of the most common allowable expenses you could (and should) be claiming when you submit your tax return.
Tax relief on business expenses
Your business will be subject to running costs no matter what its size or scale. To help you offset some of these expenses, you can exclude them from your taxable profit and reduce the amount of tax you need to pay.
However, you can only exclude costs if they officially qualify as an ‘allowable expense’ which are incurred “wholly and exclusively” for the business. Deducting these from your income reduces your profit figure (which is what you pay tax on).
Qualifying allowable expenses
Tax might not be something you can claim relief for as part of your taxable income but there are many other allowable expenses for you to take advantage of.
Many business owners miss out on valuable tax relief because they aren’t sure which expenses count as being allowable and which are.
There are specific deductions designed for working from business premises as well as for those working from home, so there are plenty of options to explore, whatever your circumstances.
Business expenses you can offset:
|Bigger purchases or investments, such as things like office furniture or technology equipment you expect to have for a year or more.
|Day-to-day items like stock, stationery, tea and coffee, and cleaning products – basically things you expect to be in your business for less than a year.
Common business costs that typically qualify as allowable expenses include:
- Business premises: Such as rent and utility bills, but not the costs relating to purchasing the property itself.
- Items bought with the intention to sell: If you buy anything in order to sell it on for a profit then it may well qualify as an allowable expense. Typical examples include stock, merchandise, and raw materials.
- Daily office running costs: Stationery, postage, printer inks, etc. – these are all great examples of revenue expenses.
- Employees: Salaries, bonuses, pension contributions, staff perks and gifts. This might also include the cost of reimbursing employees for expenses – for instance, a train fare if they travel to a client meeting.
- Travel: Fuel and mileage for business-related travel, as well as travel tickets and parking costs. Travel expenses also include things like hotel stays, food, and drink (during work-related hours and activities). However, travel deductions don’t apply to day-to-day commuting.
- Vehicles: Vehicle expenses can be pretty complicated. The rules differ depending on whether you own the vehicle personally or through a limited company. It also depends on whether the vehicle is standard, hybrid or fully electric. There are also multiple ways to calculate your vehicle expenses – just to complicate matters even further!
- Marketing and advertising: This includes website running costs and print advertising, as well as digital marketing costs such as paid ads and influencer fees.
- Legal fees and professional services: If you hire an accountant or a solicitor for your business, you can claim tax relief on the costs related to this. This also applies to costs you incur for various insurance policies.
- Clothing: This includes uniforms or protective clothing that you or your employees are required to wear when carrying out your work. This could be for safety or performance reasons, but also for advertising purposes too.
Allowable expenses when working from home
With more people working from home than ever before, these types of allowable expenses are invaluable.
Common allowable expenses if you use your home as a place to work or to run your business include:
- Gas and heating
- General maintenance – but only in rooms that are specifically used for business activity
- Mortgage interest payments
- Council tax bills
- Internet and telephone costs
- Water – but only where use is substantially and directly related to business operations (e.g., a hairdresser who relies on a water supply in order to provide their services)
The only important caveat to note is that any costs being claimed for deductions need to be directly related to the running of your business. That means, for some outgoings, you may only be eligible to claim for a portion of the cost.
For example, if you use your mobile phone for personal calls as well as communications relating to your business, you are only allowed to claim relief on the business-related element.
The best way to calculate allowable expenses
Deductions can reduce your overall tax liability and help protect your cash flow – but it’s essential to calculate your allowable expenses accurately to ensure you don’t end up underpaying or overpaying tax.
Simplified expenses are a method of calculating business expenses using flat rates rather than having to meticulously work out your actual business costs.
This is designed to make recording costs and claiming tax relief easy because you don’t need to go through the painstaking process of dividing your personal expenses from your business expenses.
It’s particularly handy for those claiming expenses for working from home as there’s no need to figure out and separate personal and professional use of things like the internet and mobile phones.
However, you can only use simplified expenses if you work for 25 hours or more a month from home.
Plus, simplified expenses can only be used by sole traders, not limited companies or business partnerships involving a limited company.
Those who don’t use simplified expenses generally use the cash basis accounting or accrual accounting methods instead. These are more complicated as personal and business costs need to be clearly divided.
Understanding what you can claim
The trading allowance is the amount that you can earn from self-employment or miscellaneous sources in a tax year before you need to report it to HMRC and pay tax. If you go over the £1,000 trading allowance threshold then you’ll need to sign up to send tax returns, but you can still offset the allowance against your earnings, and reduce your tax bill.
It’s important to note that you aren’t allowed to claim the Trading Allowance and tax relief on your expenses at the same time.
You’ll need to choose one or the other – so go for the one which gives the biggest reduction!
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