Taking full advantage of claiming allowable expenses is essential if you want to lower your business’s tax bill. Deducting allowable expenses from your turnover lowers your overall profits, therefore reducing the amount of corporation tax payable. An allowable expense is anything that is incurred “wholly, exclusively and necessarily” in order to run your business.
Therefore, it is critical you keep the receipts and maintain up-to-date records of your expenditure if you intend to claim expenses. This blog post will provide a basic guide to claiming expenses as a sole trader and as a limited company.
Claiming expenses as a sole trader
Self-employed individuals must claim expenses through their self-assessment tax returns, which are filed before 31 January in the following tax year.
Examples of allowable expenses for sole traders include:
- office costs – stationary, office equipment and phone bills
- travel costs – public transport costs, fuel and parking
- business premises – utility costs, rent and business rates
- advertising or marketing – website costs and money spent on advertising your business.
Claiming expenses as a limited company
For limited companies, claiming expenses is done through the corporation tax return and, as such, all business expenses that are not specifically disallowed by HMRC can be claimed.
However, any expenses you use for non-business purposes – such as company cars, childcare and travel expenses – must be reported as a company benefit.
In addition to the expenses sole traders can claim, limited companies can deduct:
- employers’ national insurance contributions
- executive pension contributions.
Claiming expenses can be a complex topic, especially if you run a limited company with a multitude of different costs.
Our advisers are here to assist you every step of the way, no matter what kind of business you operate.