As experienced bookkeepers, we’re always pleased to add value by offering sound advice to our hardworking clients. So, in this blog, “Five Surprising Things You Can’t Set Against Your Tax Bill”, we’ve drawn from several years’ experience to pull together the five main elements that cause people to come unstuck with their taxes.
Our role is to simplify your life and make it less stressful in the world of tax compliance. Don’t sit and wonder about taxes; we’re always here to help.
You Know What You Know
It goes without saying that you’re great at what you do. And, you’re busy. After all, you run your own business. However, knowing about the finely tuned nuances in accounting requires experience. Therefore, to make things easier, here’s your user-friendly guide to the main catalogue of HMRC no-nos.
Tax-Deductible Expenses
As you know, whatever sector you work in, your business has running costs. You can deduct some of these costs to work out your taxable profit as long as they’re what HMRC refers to as “allowable expenses”. So, whilst meeting your civic duty and commitment to paying tax, it makes sense that you’d also want to minimise your liability.
But, beware. Tax can be somewhat nuanced. To be fair, it can be quite complex.
You could easily get things wrong if you follow a DIY approach and submit your own accounts. Make a mistake, and you could pay too much tax or become liable for penalties.
For instance, did you know that not everything that typically falls under business expenses is tax deductible? For legitimacy, they have to be wholly and exclusively “for the purposes of trade”. Here are some key ways to avoid tripping up on those business banana skins.
First Things First
When it comes to tax-deductible expenses, there are two you need to know about:
- Capital Expenditure (where you may qualify for capital allowances). These are larger purchases such as vehicles, machinery, office furniture or computers. That is, assets that are likely to last for some time. They’re charged to expense gradually via depreciation and over a more extended period.
- Revenue Expenses. In a nutshell, these are shorter-term expenses. For example, ink cartridges, research and development, marketing costs and so on.
We’ll focus on the latter, as these are more common and harder to identify as non-tax-deductible.
1.Travel
As an illustration, let’s start with the obvious one. And,in some ways, you may find it surprising. Broadly, expensable travel costs must be completely and wholly related to your business.
Here’s a good example. You’re self-employed. For a better work-life balance, you may find working from a rented office or office space convenient. Basically, it makes you more producctive. In this case, travel costs to and from your office are not allowed. It’s also worth pointing out that if you are unfortunate enough to return to your car to find a parking fine slapped on your windscreen, HMRC will not pick up the tab.
2.Clothing
If you feel confident that the smart suit or clothes you just bought to attend an important series of meetings is a taxable expense, then sorry, but I need to put you straight about this. But, I hear you say, they’re just for work, aren’t they? It’s safe to assume you’re not planning to get suited and booted for a night out with your friends in the pub.
HMRC sees things differently. Your suit or sleek dress and jacket could and does have an additional purpose. That is, you may scrub up to attend a wedding, or a non-work-related formal occasion.
To be clear, where it will be allowed is for:
- Uniforms
- Protective clothing needed for work
- Costumes for actors and entertainers
3.Client Entertainment
Out and about for business? Setting off the costs of lunch is fine. Your own lunch, that is. Not anyone else’s. On the other hand, if you take your new or favourite client to a smart restaurant to thank them for their business, with plans to cement your solid working relationship with food and wine, you can’t expense the bill against your tax return.
Whilst you may think this is a legitimate form of sales and marketing, and maybe others would agree, the tax man takes a dim view. Perhaps you could have had this conversation in your office over a civilised cup of tea. Plus, there’s a degree of personal benefit involved, too.
However, there is slightly more positive news on the socialising front.
Treating your employees to their annual Christmas party is allowable. These rules apply:
- It has to be once a year only
- It should be open to all employees
- The cost needs to be at or below £150 per head.
Interesting fact alert: HMRC has also confirmed that virtual Christmas parties, should Covid ever rear its ugly head again, are eligible. (Although…solo drinking in front of your computer may not be the most tremendous fun you will ever have.)
4.Accommodation
A quick but important point. Here, we’re underlining the business-related-only issue of travel. Yes, you can claim if you’re staying in a hotel for a conference or as a base to attend business meetings. But keep it professional. At the end of your trip, you can’t set those extra tagged-on two days you decide to stay there for site seeing.
5.Training Costs
If you invest in training to help you improve the skills and knowledge you use in your business, you can expense this against tax. Are you looking to expand into a new area of your business? Or even to start a brand-new, or additional business that would need fresh knowledge or skills ?
Unfortunately, you cannot claim for these types of training courses. This is a good example: you’re an electrician, say. A course and qualification on electric vehicle charging would be allowable. Training to enable you to start a new business as a plumber? HMRC says no.
So, we hope you’ve found our “Five Surprising Things You Can’t Set Against Your Tax bill” blog helpful. We try to be as jargon-free as possible, so spread the word! Also, feel free to share links back to this page on social media.
As you can see from the above, ensuring that your expenses are exclusively for your business is not as straightforward as it sounds. There are caveats and subtle rule exclusions that could put you on the wrong side of the law. Don’t be that person. Get in touch with us today at Angel Bookkeeping. Let’s get the conversation started.
Angel Bookkeeping
December 2022