What Is Meant By Allowable Expenses?
If you’re new to running your own business, or even if you have an already established business, you may have heard the term expenses but may not be all that familiar with it. Well today, we are going to clear everything up for you. And the phrase you need to be wary of is allowable expenses.
These are expenses that are classed as essential to help your business run. And the reason you need to know about these is that they are tax-deductible. What we mean by this is that you don’t have to pay tax on any money that you have spent. To put this in perspective, if over the course of a year, you made a profit of £40,000, but claimed £6,000 in allowable expenses, you would actually only be taxed on £34,000 of that income.
What can you claim against?
Allowable expenses are costs associated with the running of your business. So these can be everyday costs. This can include things such as:-
- Phone & utility bills
- Travel costs
- Premises Rental
As a business owner, you should, if you haven’t already, have insurance. There are various insurances that you can take out to cover many elements of your business. From general business insurance to public liability insurance, to contents insurance. And something that you should know is that insurance can be classified as an allowable expense.
In your business, if you have vehicles that you run day-to-day as part of the daily running of your business, it’s no secret that these costs can start to add up. However, you can claim up to a certain amount against these costs. This is in part thanks to HMRC’s AMAP Scheme. An example of this is that you can claim 45p per mile for the first 10,000 miles and 25p for each mile after that if you are travelling by car or van.
What you can’t claim
As important as it is to note what are classified as allowable expenses and what you can claim, at the same time, it’s also important to know what you can’t claim as expenses so you don’t end up falsely claiming against what you shouldn’t and paying more than you expected. You should note that:-
- You can only claim costs for people that work IN your business.
- You can’t claim costs associated with, for example, entertaining clients on a night out.
- You can’t claim any expenses that benefit both yourself and the business.
- You can’t claim depreciation of assets.
- You can’t claim for Charitable and political donations.
Keeping a record of business expenses
It’s important to keep a constant ongoing record of your expenses so that when it comes to your self-assessment and VAT returns that you can easily access them. There are many different tools and online resources to help you manage receipts on the go rather than amassing a big pile to have to go through one by one when it comes to it.
Claiming on accountancy fees
If you have accountants that work solely for your business you can also claim tax relief for the full cost of their fees. However, if they are helping you on other associated tasks such as preparing for your self-assessment they will be taxable to you personally.
How we can help
Here at D&K Accounting, we are a team of profit-first professionals with experience in helping businesses of all sizes across the country get their finances in order. If you want to know more about what expenses your business could possibly claim back get in touch today.