A complete guide to all the expenses that are allowable for tax purposes.
Employee costs
Wages and salaries
This may include both directors and non-directors. In certain circumstances you may employ a secretary, or junior assistant, but the salary paid should be appropriate for the work done, and the work done should relate to the work of the company. You should not employ a chauffeur or daily-help through your company as these would be considered by HMRC to be personal benefits.
Employer’s national insurance
Employer’s national insurance is part of the total cost of the payroll.
Temporary staff
This covers only temporary staff hired through an agency, who pay the staff and send you a VAT invoice. You may only hire staff for office work relating to your business.
Staff training
Training courses of any description, so long as it relates specifically to the work that you do and cannot be considered to have any benefit to the trainee personally. Language courses and the costs of retraining are not usually permitted by HMRC as a business expense.
Travel and subsistence
Air fares, train and bus fares, taxi fares, parking, hotel accommodation, and the reasonable cost of meals taken while working away from your normal place of work.
Motor mileage allowance
Your claim for mileage allowance based on HMRC Fixed Profit Car Scheme rates.
See our article on mileage allowance.
Premises costs
Use of home
This is the cost of providing an office at home and is a proportion of the cost of your personal metered water, electricity and gas bills. HMRC will permit a claim of £4 per week unless the use of an office space at home is substantive and it is not used purely to perform administrative duties.
Telephone expenses
Home telephone
You should keep your main home telephone number in your own name and pay this out of your personal bank account but, if this telephone is also used for business calls, you should recharge the company for the business calls
Mobile phone
Your company may pay the cost of using a mobile phone including rental and private calls provided the contract is in the name of the company. Only one mobile phone per employee is allowed. If the contract is not in the company name, only the cost of business calls over and above the airtime package can be claimed.
See our article on claiming telephone costs as a company expense.
Internet costs
Your company may pay the cost of subscription to an Internet Service Provider for internet access to your home provided the contract is in the name of the company. If the contract is not in the company name none of the costs can be reclaimed.
General administrative expenses
Postage and courier
All postage and courier expenses relating wholly, exclusively and necessarily to your work. Printing and stationery All office stationery, consumables, printer cartridges, photocopying, etc. (includes books, technical journals, newspapers, etc.) relating wholly, exclusively and necessarily to your work. Please note that there is no VAT on books, journals or newspapers.
Professional subscriptions
Subscriptions to professional organisations connected with your work, such as institutes or societies which are approved by HMRC. It does not cover subscriptions to clubs and societies.
Advertising and marketing
The cost of advertising your services in professional handbooks, journals, telephone directories etc, and of producing brochures. It should not include any element of entertaining.
Donations
The company may make modest donations to charitable organisations either locally or to do with work, but may not contribute towards gifts such as leaving presents.
Equipment expensed
All individual items of office furniture, fittings and equipment costing under £150 will be analysed to the relevant cost heading, e.g. computer expenses. Any individual item costing over £150 should be included in fixed assets.
Equipment hire
Any item of office equipment that you have rented during the year, or hired on a one-off basis.
Computer expenses
Computer accessories, rental charges, license fees and computer software. The purchase of computer hardware (if costing over £150) is treated as fixed assets and should be included as a capital item.
Depreciation
Under this heading, individual items of furniture, fittings and equipment costing over £150 are depreciated at a rate of 25% and computer equipment over £150 are depreciated at a rate of 50%.
Other expenses
All those items which do not fall naturally under any other heading. HMRC often questions this figure, so we would aim to keep it as low as possible by reallocating expenses to other relevant headings.
Legal and professional costs
Accountancy fees
As a Competex client, this will usually be our fees only.
Solicitor’s fees
This could cover the cost of producing or checking employment contracts, chasing outstanding debts, taking legal action against former clients and defending yourself against legal action by former clients. It could also cover the cost of preparing trust deeds for a company pension scheme and the cost of company searches. As part of our package, we pay the fee for your annual return to Companies House and the cost of this will not therefore appear as a separate item in your accounts.
Insurance
This is the cost of insuring the equipment owned by the company and the cost of professional indemnity insurance.
Bank charges
These are charges arising on the company bank account in a number of guises, and may be transaction charges, unauthorised overdraft fees or arrangement fees. It could also include the annual fee on a company credit card. It should not include charges relating to finance agreements or bank charges from your own private bank account.
Consultancy fees
This covers work-related professional advice that you have received. In the same way that your clients are particular about your status, so you should be certain about the status of any consultant that you employ. He or she may operate either as a company, a partnership or self employed. If self-employed, you should look for evidence that the individual is registered as such with HMRC, such as a VAT number; a printed letter-heading alone is not sufficient. Remember that if you get it wrong, HMRC could later ask you to pay tax on the grossed up amount of the ‘consultant’s’ invoice.