Running a limited company comes with many responsibilities, and one of the crucial aspects of managing your company’s finances is understanding the expenses that can be claimed.
Claiming allowable business expenses is about reducing your company’s tax liability and ensuring you are paying the right amount of Corporation Tax.
In this blog post, we will explore the various expenses that can be claimed by a limited company, as well as some important guidelines to keep in mind.
1. Business Travel and Subsistence:
- Business travel and subsistence expenses are considered allowable if they are “wholly, exclusively, and necessary” for the performance of your company’s duties.
- These expenses include travel costs, accommodation, meals, and other necessary expenses related to business travel.
- This category also covers parking charges, tolls, congestion charges, and business-related phone calls.
2. Business Entertainment:
Business entertainment expenses are generally not allowable for tax relief. These expenses include:
- Food and drink
- Accommodation (e.g., hotel stays)
- Theatre and concert tickets
- Sporting events and facilities
- Entry to clubs and nightclubs
- Use of capital assets such as yachts and aircraft
- Payments made to third-party business entertainment organizers
- Free samples
- Business gifts
- Business entertainment generally refers to the cost of entertaining clients, potential clients, suppliers or any other person who is not classed as an ‘employee’ of the business.If the event is held for the purpose of entertaining the customers, this would be classed as business entertainment and all related costs would be disallowable for tax purposes, and any VAT could not be reclaimed.
However, if the event is held for the purpose of entertaining the staff, this would be classed as staff entertainment and any related costs to the extent of entertaining the staff, but not entertaining the customers, would be allowable expenditure for tax purposes.
In this instance, the VAT can also be reclaimed to the extent of the costs related to staff entertainment; so, at an event held for staff entertainment purposes and with total attendees of 2 staff members and 2 customers, 50% of VAT could be reclaimed.
3. Expenses Covered by Exemption:
- Some business expenses and benefits are covered by exemptions, meaning they do not need to be reported in your end-of-year reports.
- To qualify for an exemption, you must pay a flat rate to your employees as part of their earnings or reimburse the employee’s actual costs.
4. VAT on Business Expenses:
- Special VAT rules govern the recoverability of VAT on various business expenses.
- In most cases, businesses can’t reclaim VAT on supplies not made directly to the business. However, there are exceptions for expenses incurred by employees for business purposes.
5. Reimbursing Expenses for Home Office Equipment:
- The COVID-19 pandemic prompted temporary changes in the rules for reimbursing employees for home office equipment expenses.
- Employer reimbursements for such expenses are exempt from tax and National Insurance contributions if the equipment is obtained to enable the employee to work from home due to the coronavirus outbreak.
6. Keeping Records:
- All limited companies must maintain proper business records, including accurate records of expenses.
- To claim business expenses for tax purposes, detailed records must be kept for at least six years from the end of the relevant accounting period.
Understanding and correctly claiming these expenses is crucial for the financial health of your limited company. It reduces your tax liability and ensures that you comply with tax regulations. To navigate the complexity of business expenses and taxes, consider seeking professional accounting and financial advice to maximise your limited company’s financial resources.
Take the first step toward financial efficiency and peace of mind by contacting Core Connect Accountants for a free initial consultation.
Don’t let tax regulations and expense management uncertainties hinder your business growth. Your financial success starts with a conversation – contact us now.
