Are business expenses deductible?
In the UK, businesses can deduct expenses from their income prior to paying tax. These deductions will likely change depending on the type of business you operate and from where you run it.
You can deduct expenses incurred when setting up your business, for example, the cost of equipment needed to operate. Make sure you keep your receipts for any company spending. If you are VAT registered, you can also reclaim the VAT for anything bought in the four years before becoming VAT registered (and up to six months for services).
Ensure you have the best start up business bank account to suit your business’ needs. A good business bank account will help you keep track of profitability and expenses, and will often throw in some useful free business services, so take time to seek the best deal.
If you purchased something for personal use but then transferred this to your business, you can usually claim tax relief on this, even if the item was purchased before you began operating.
Working from home
If you are home-based, your deductions can include a percentage of the costs of running your home – light and heat, for example, or telephones and broadband. You might also be able to deduct a proportion of your council tax, mortgage interest, home insurance, cleaning and repairs or redecoration.
Just what you can claim and how much will depend on whether your business is entirely home-based and how much of the home operating your business takes up. Is it one room that you use as a dedicated office, for example, or is that space used for other activities as well?
If you travel when running your business, you can claim mileage at 45p per mile up to 10,000 miles (over 10,000 miles claims reduce to 25p per mile). Your vehicle can also be owned by your company, allowing you to claim relief for its value and running costs. If you are also using your car for personal use, however, claiming mileage may prove to be the easier option.
If you take training to keep you, or your employees’, skills up-to-date, the costs of this can be deducted. However, if training is for new skills, in most instances costs won’t be deducted.
Gifts and entertainment
This is possibly the most complicated area when it comes to deductions. In general, if you are entertaining a client or potential client, you cannot deduct this expense. If you are entertaining both clients and staff, you can deduct a portion of the costs; this only applies if your team are being entertained, not if they are acting as hosts for clients.
Gifts are also generally not tax deductible. However, in certain circumstances, they can be. Examples include non-food, drink or tobacco gifts (or vouchers that could be exchanged for these) that are under £50. This is a combined total of all gifts to a client.
Keeping accurate records
When claiming deductions, you will need to make sure you have accurate records of what was spent, when and what it was for. Make sure you keep all your receipts and record all transactions.
Managing deductible expenses
As a small to medium-sized business owner, getting your expense deductions right can make a significant difference to your bottom line. To help with this process, you might want to consider using a spending management tool, such as that offered by Soldo. Our technology enables businesses to take full control of employee expenses.
The solution, which includes a prepaid business card, mobile app, and admin dashboard, will allow you to not only track expenses but control what is spent, where and when. Alongside the prepaid card, consider developing an employee expense policy that includes clear and simple steps for claiming expenses and defines what spending is permitted and what isn’t.
You can avoid overspending by using a card that allows you to set spending limits and rules unique to each prepaid business card. These can determine where the card can be used, how long it can be used or what it can be used for, for example, travel only. This will help you to avoid many of the pitfalls of business credit cards, the use of which you cannot control, and which can lead to unexpected expenses being reported at the end of the month.
With the Soldo system, you can not only set limits but manage these in real-time through the admin dashboard, something you can’t do with a company card. This reduces the time spent at the end of the month consolidating expenses. Staff can upload receipts as soon as an item is purchased, allowing it to be verified and removing the risk of lost receipts (meaning you might not be able to deduct the cost come tax time).
To find out more, visit our page about prepaid business cards, or contact Soldo for further information and advice.