Limited Company Expenses

Direct costs

This relates to costs directly related to sales.

For example, if you were building a house, the direct costs would be the bricks, cement, windows, etc required.

Subcontractors

These are people you pay to complete a particular task - they aren't employees. If you pay someone to help you complete a particular section of work they would be classed as a subcontractor.

You will need to register for CIS if you pay subcontractors within the construction industry, click here for details.

Pension

Company pension schemes are a great way of reducing your corporation tax liability.

Make sure that you take out a “net-pay” scheme paid directly out of your company bank account. Do not take out a “relief at source” scheme as this is less tax efficient.

Use of home

Directors and employees can claim the following:

Fixed amount: If a substantial amount of time is worked at home each person can claim a set amount (£6/week for the 2020/21 tax year) without the need to maintain receipts or bills.  Simply put an expenses claim into the company, much like you would if you were employed by another company.

Broadband: If the person didn't have broadband in their home before working from home (which is very unlikely) they can claim 100% of the cost. If the person had broadband already they can claim the difference between any upgrade (e.g. someone upgrades to fibre optic from £10/month to £30/month - they can claim the £20 difference). HMRC guidance on this can be found here.

Insurance

We would suggest taking out either public liability and/or professional indemnity insurance to cover your business. If you have employees you are required by law to get employers' liability insurance although, you may not need employers' liability insurance if you only employ a family member or someone who is based abroad.

Public liability insurance protects against claims of personal injury or property damage that a third party suffers (or claims to have suffered) as a result of your business activities.

Professional indemnity insurance (also known as professional liability insurance) helps protect professional advice and service providing businesses from bearing the full cost of defending against a negligence claim made by a client.

Employers' liability insurance will help you pay compensation if an employee is injured or becomes ill because of the work they do for you.

Our governing body offers us a discount with Hiscox so we use them - if you have a governing body, it’s worth checking with them to see if there is a provider they recommend. We’d also suggest getting a quote from a comparison website such as Money Super Market, Confused.com or Compare The Market.

IT & software costs

Bookkeeping software: Quickbooks, Xero, FreeAgent, Sage One (click here for our bookkeeping software review).

Software: Microsoft office, business apps.

IT costs: Laptop, desktop, tablet, mouse, keyboard, USB memory stick.

Telephone

If you have a premises you can claim for the full cost of the office phone there.

You are also able to claim for mobile phone costs for you and your employees.  If the mobile contract is in the company name you can claim the full cost but if the contract is in the individuals name you may only claim for the additional business call costs.

Postage, printing and stationery

Postage: Stamps, envelopes, sellotape

Printing: Printer, paper, ink

Stationery: Pens, pads, paper clips, highlighters

Advertising

Digital ads: Google/Facebook, TV, radio, magazine, newspaper

Physical: Leaflets, billboards, business cards

Website

Domain name - our domain name is millwardmay.co.uk. There is usually an annual payment required to keep your website address.

Web hosting provider - provides the technologies and services needed for the website to be viewed on the internet.

Web designer - paying someone to build your website.

Travel & subsistence

Travel and subsistence can be claimed when travelling to a temporary workplace, click here to see if you can claim.

Travel: Trains, buses, aeroplanes, taxis, etc

Subsistence: You can claim a reasonable food expense when travelling and keep receipts or you can pay benchmark rates set by HMRC that can be found here.

Car expenses

You can either own the car personally and pay yourself mileage or you can buy a car in the company name.

You can claim 45p per mile for the first 10,000 miles and then 25p per mile after that (per tax year). For example, if I drove 12,000 miles during the tax year, I could claim 45p x 10,000 + 25p x 2,000 = £4,500 + £500 = £5,000

It is rarely worth buying a car in the company name as the personal tax payable is extortionate! This could change for electric cars in 2020 as the benefit charge is set to be reduced.

Waste disposal

Removing, destroying or storing damaged, used or other unwanted products and/or substances.

Protective clothing

Safety boots, helmets, goggles, high visibility jackets, ear defenders or any other equipment designed to protect the wearer's body from injury.

Training, books & journals

Training - courses that enable you or your staff to provide a better service/product are claimable.

Books/journals - the publication must be business specific and not for self-interest. If you buy a work-related book just to broaden your background knowledge, you’re unlikely to be allowed to claim tax relief on the expense.

Annual parties

You can claim up to £150 per head per year on annual events such as a Christmas party and the employee doesn't need to pay personal tax on this - to qualify all expenses must meet the following conditions:

• £150 (including VAT) or less per head

• annual, such as a Christmas party or summer barbecue

• open to all your employees

Click here for more details.

Trivial benefits

An employer can provide trivial benefits such as a bunch of flowers, a box of chocolates, a meal out and the employee doesn't need to pay personal tax on this - to qualify all expenses must meet the following conditions:

• it must cost no more than £50 to provide

• it isn’t cash or a cash voucher

• it isn’t a reward for their work/performance or in any way contractual

If you’re the director, you can’t receive trivial benefits worth more than £300 in a tax year.

Click here for more information on trivial benefits and here for a few examples.

Accountancy

You can claim for all fees that relate to producing the accounts and business advisory services. You aren't able to claim for fees that relate to personal tax.

Charitable donations

It’s tax efficient to pay charitable donations through the company instead of paying them personally - you can’t claim gift aid if you pay to charity through the company and it can’t be claimed as a cost if you made a loss during the year - click here for more information. In order to claim them as an expense, you must be able to provide the following information:

• Charity name/Membership name

• Date of donation/membership subscription

• Donation amount/membership amount

• Gift aid claimed? This must be “No”

Important note: Crowdfunding donations do not count as charitable donations.

Entertaining

Client entertaining - you must be discussing a particular business project or forming/maintaining a business connection. It must be reasonable and can be for such things as food, drink, accommodation, theatre or sporting tickets. The business can pay for this entertainment, however it is not allowable for corporation tax purposes and VAT cannot be recovered. The best way I can describe an entertaining expense from a tax point of view is its like taking a dividend but not paying the personal tax on it, you do still have to pay the corporation tax.

Hospitality can only be treated as allowable for corporation tax if something of equivalent value is given in return ("quid pro quo").

Staff entertaining this is allowable for corporation tax purposes as long as it is wholly and exclusively for the purposes of trade. Unless it is covered by a particular exemption (see trivial benefits above), a personal tax charge could arise on the employees for any benefit they are getting from this.

Business gifts - treated in the same way as client entertaining, more information can be found here.

Bank charges & credit card costs

You can't include costs for personal cards - the cards must be in the business name.

Bank charges - monthly fees, specific transaction fees (including foreign currency), exceeding overdraft fees, interest.

Credit card costs - monthly fees, late payment fees, foreign currency fees, interest.

Fixed assets

Fixtures & fittings, plant & machinery, motor vehicles and computer equipment.

Employee benefits

Periodic medical checks or health screening - only one a year is exempt from being taxed on the individual personally.

Eye tests - if they are required by health and safety legislation for employees who use a computer monitor or other screen.

Counselling - as an employer, you do not have any tax, national Insurance or reporting obligations if you provide welfare counselling services for your employees. The counselling service must be for welfare issues, such as bereavement, ill health or stress, problems at work, sexual abuse or personal relationship difficulties and must be available to all your employees. Click the link for more information: www.gov.uk/expenses-and-benefits-counselling

Research & development (R&D)

R&D reliefs support companies that work on innovative projects in science and technology. It can be claimed by companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.

You may be able to claim Corporation Tax relief if your project meets HMRC’s definition of R&D - click here for more details.

Not claimable

Common expenses people incorrectly believe they can claim for:

• Personal clothing that isn't protective or doesn’t have the company logo on it

• Physiotherapy/chiropractor costs

• Travel with a dual purpose

• Home broadband (see use of home section above)

• Speeding fines/courses

Not usually claimable or worth claiming:

• Designing, building and/or decorating a home office is not usually worth claiming (speak to us about this as there are tax implications to consider).

• Glasses are not usually claimable as a business expense due to the likelihood of them being used personally. If however you have received a specific prescription that requires you to wear glasses for screen work and you can prove that you don't use them outside of work, then it is more likely that HMRC will allow the expenses as a business one. For example, you have a second pair of glasses used when not working in the business.