Understanding the deductible expenses in the UK is essential for efficient financial management to minimise your tax bill.
Navigating a tax return can be intricate, but comprehending deductible expenses is essential to optimise taxes.
By decreasing taxable income, you can keep more capital within the business.
It enables more investment in expansion, creativity, and various operational requirements while reinforcing the financial stability and sustainability of the business.
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This guide delves into 10 deductible expenses and explores how to claim tax relief to help businesses lower their tax amount.
Table of contents
10 Common deductible expenses for business in the UK
1. Costs of working from home
If you operate out of your home, then as a sole trader, you can charge a percentage of household expenses like mortgage interest, utility bills, and insurance.
An effective method to figure out the proportion to set is to do an approximate calculation of square footage used or base it on the number of rooms used and the period they are used for business operations.
Remember, if you utilise part of the property solely to run a business, then this can give you issues with capital expenditure gains tax when you sell your residence in the future – non-exclusive use is much more secure.
Alternatively, you can claim £4 each week when you use part of your residence for work, which is a more straightforward calculation!
2. Mileage
Mileage is determined at 45p a mile for vehicles for the first 10,000 miles and 25p a mile above 10,000 miles.
You can additionally claim mileage for motorcycles at 24p a mile and for cycles at 20p a mile – now there is an incentive to get fit and cycle!
Mileage is valid only for business use, and travel to your usual place of work cannot be imposed (so if you work in the same workplace every day, that is considered regular travelling and is not allowable for tax purposes).
3. Legal and financial costs
When determining your self assessment expenses, you should include any costs related to employing an accountant, solicitor, consultant, employee, architect, or other expert you’ve paid to assist you.
Likewise, you may reimburse professional indemnity insurance premiums and other bank and insurance costs. Among the permitted expenses are:
● Bank, overdraft and credit card charges
● Interest on banking and commercial loans.
● Interest on hire purchase
● Rent instalments
● Payment methods for alternative financing, including Islamic finance
4. Marketing costs
Another Self-assessment tax return cost entrepreneurs must remember when filing is marketing their business.
HMRC will enable you to claim business costs for:
● Any advertisements you’ve placed in magazines or phone books
● Bulk mail advertising (or “mailshots”)
● Any expenses related to the free samples you’ve produced and distributed
● Hosting for websites and maintenance costs
Yet again, there are a few variations to the rule.
You aren’t allowed to claim for entertaining customers or vendors or event hospitality expenditures as part of your annual return.
5. Subscriptions
Do you have subscriptions to trade publications or professional associations directly related to your work?
If so, you can deduct those subscription fees from your annual costs.
Permitted expenses involve a subscription to any trade professionals or academic journals.
Likewise, a subscription or annual membership of a professional business or a union will also apply as permitted expenses.
6. Phone bills
Work phone contracts and broadband payments can be claimed as a limited business expense.
The total cost of your cell phone bill can be written off as a business expense if it is under your business’s name and is only used for work-related activities.
If the contract is personal, you can only deduct business-related expenses and separate the business from personal use.
If you have made business calls from your home phone line, you can deduct a limited amount of business expenses.
7. Annual staff party expenses
Whether it’s a summer party for staff members or a Christmas bash, you can deduct the cost of entertaining your staff from your taxes as long as it’s an annual event free for all staff members and doesn’t exceed £150 per person.
8. Website costs
The expenses associated with developing and maintaining websites can differ.
Regular website hosting service costs are typically deductible from taxes, which makes them advantageous for businesses.
Development costs, however, are frequently regarded as capital investments and may need to be handled differently for taxation reasons.
You should speak with your accountant for guidance on the appropriate allocation and deductions for the various website creation and maintenance expenses.
9. Cleaning costs
Cleaning costs incurred for maintaining a property can be deducted from your tax-deductible profits.
Whether for regular office space inspections or specific cleaning services involving tenant turnover, including tenancy or end-of-tenancy cleans, the related costs are entitled to tax deductions.
All calculations can include these expenses when deciding the taxable income produced by properties, providing an essential deduction for reducing the taxable profits.
10. Raw materials/stock
These costs are deductible when purchasing basic supplies or stock vital to your business’s operations.
If the business includes the sale or production of goods, the expenses of getting materials into the production or final sale are deemed deductible.
For example, if you’re a producer, any expense for getting materials like wood, metal, or fabric that contributes directly to the items you sell can be a deduction.
Similarly, retailers can claim the expenses of purchasing their goods or stock.
These deductions reduce your taxable earnings by compensating the amount spent purchasing the goods you sell.
Hire an Accountants
Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.
Final thoughts
Nobody wants to incur more tax than they have to, so maintaining your business as tax-effective as possible might save you a lot.
Remember, the most critical rule when figuring out what is allowable expense you are entitled to for your limited business is that they must be incurred entirely, exclusively and essential to your business’s operation.
By comprehending the simplified expenses accessible and the rules governing them, you can maximise business costs and tax claims, possibly saving a considerable amount on the tax bill.
