The warnings that HMRC are going to do more record checking in small businesses means that it is even more crucial to get all your business expenses repayments and reporting correct. This can be so complicated that applying common sense is not enough. You really need to know the rules or get some expert advice.
What You Can Claim
When claiming expenses against income tax, the main criterion is that the expense is ‘wholly, exclusively and necessarily’ for the benefit of the business. However, if you work wholly, or partly, from home for your small business, you may be able to claim against some personal bills. For example, you might charge a percentage of your landline phone bill, or the cost of business calls.
Getting this right is tricky, and you should take advice from your accountant or outsourced bookkeepers before making the claims. Other difficult areas include how you claim for using space in your home for business purposes. You need to be confident that what you claim is allowable, so get a professional opinion.
The Rules on Travel and Other Expenses
You can claim for travel with public transport receipts, or it’s 40p a mile when using your own car, 24p with a motorbike, or 20p with a push-bike. You keep fuel and maintenance receipts for a company car, but what if you sometimes use it for personal reasons? If your business base is away from your home, you cannot claim for the journey to work, except when you need to work somewhere else temporarily, and there are rules defining that. Subsistence claims must be reasonable. What does that actually mean?
Other expenses will depend on what type of business you operate. A novelist writing about beauty salon owners and clients one year claimed for facials, mud baths and massages taken while doing research. You probably wouldn’t get away with that.
Annual Expense Returns
If you have employees and directors, all the above applies to them as well. And you have to submit annual returns of expenses and benefits for them. The P11D is for directors and employees earning over £8,500 a year. P9D is for employees earning less. These forms must be submitted by July 6th each year.
If you are in any doubt about expenses, hire the services of a bookkeeper or accountant.