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Many business expenses do not raise questions whether they can reduce your taxable income or not. These are business stationery, printing and postage, legal costs, business insurance premium, accountancy fees, marketing and advertisement expenses, office equipment such as laptops and printers (via capital allowances). There are exceptions that are outside of this article, however most of them can be claimed as business expenses. There are expense items though that need to be considered carefully when making a claim. We are listing two of them which we have most questions towards:
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If you rent the business premise, such as an office, co-working space or even an occasional meeting room in business centres, this is business expense and will reduce your tax liability. However, if you run your small business from home, you need to make special calculations as you will not have the receipt from a third party here. First of all, you need to calculate the total costs incurred that can serve as a basis of claim. The main elements usually are:
- Rent charge or mortgage interest
- Council Tax
- Electricity, water and heating
- Internet and telephone bills
Once you have got the figure, then you will need to get a reasonable method to divide it; for instance, the amount of time you spend working from home or by the number of rooms used for running your business.
For example, if you have three rooms in your home and you only use one for running your business; if you paid £1,000 for Council Tax and your Electricity bill for a year is £500, the amount that can be claimed is £500 (£1,500 divided by three). If you work only half of the week from home, you can claim only half of the amount, that is £250 as business expense.
For those who work from home for 25 hours or more and would like to avoid complex calculations, HMRC offers to use simplified expenses. By opting for this method, you can claim £10 per month if monthly business hours are up to 50 hours. If you work from 51 to 100 hours from home you can claim £18 per month, and the flat rate amount to claim for 101 hours or more is £26 per month.
You can claim a business proportion of the actual vehicle running costs, but many small businesses use simplified expenses. By using the latter, you can claim flat rate of 45p per mile for the first 10,000 miles per annum and 25p per mile after 10,000 miles. You need to document every business trip, keeping the records of destinations, purposes of the journey, miles travelled and dates. Excel spreadsheets used to be the most popular method for keeping such records, whereas now mobile apps that use GPS to track mileage successfully replace them.
In addition to mileage, you can also claim for specific business travel costs such as tolls, congestion charges and parking.
Also note that the travel from home to work is not considered as business journey, so you cannot claim expenses for this.