From understanding expenses to starting a limited company, our downloadable business guides can help you.
Being savvy with your expenses is a large part of running a successful business, regardless of its size. Claiming expenses is a dead-simple way to keep your business tax efficient – it reduces your profit, which in turn reduces your Corporation Tax payments. By claiming every allowable expense you’re making sure you don’t pay a penny more in tax than you have to.
For more information about exactly what expenses you can claim, check out our nifty expenses guide.
So now you know what to claim, how do you actually go about claiming it? Do you just keep a list, or throw all the receipts in a shoebox? There are a variety of claimage methods, depending on the type of expense. Read on to find out how.
You can either pay your company’s expenses directly from the company account or as a ‘reimbursed expense’ when paid by you personally. It is important to remember to keep an accurate record any time you reimburse yourself from the company funds.
Your employees can also claim expenses, so it is good practise to have a company expense form and policies – i.e. how much employees are allowed to spend and in what situations – and collect and file it at the end of each month. Here it is also important to stress that your employees must keep all receipts to be able to reclaim any expenditures.
Sole traders claim their expenses when they file their Self Assessment; this is typically done at the beginning of each year (the deadline is January 31st for online filing), although they can file any time from the previous April.
Sole traders can claim back any expenses they have incurred that relate directly to their business in much the same way as limited companies. This includes a percentage of the space used for working – for example, if you always use a quarter of your living space for work, you can claim 25% of your rent.
You can claim tax relief for mileage when you have used your own car on business, or for fuel you buy when you use a company car. If you use your personal vehicle for business travel you can claim the following rates for the tax year 2014-2015:
Rate Per Mile (On first 10,000 miles in tax year)
Rate Per Mile (On each mile over 10,000 miles)
Cars & Vans
Keeping track of your mileage is essential, as without the breakdown of journeys and mileage covered, HMRC could refuse to validate your claim. We suggest detailing all business mileage on a spreadsheet and keeping it up-to-date throughout the year. If you are claiming tax relief for fuel when using a company owned car, you must keep hold of all of your receipts.
The cost of anything that is necessary for the running of your company will receive tax relief, the trick is to make sure you meticulously record everything so you don’t lose out. Unlike mileage, you are not limited to a certain amount of supplies, within reason. If you’re not using online accounting software the best way to keep track of what you have spent on supplies is, again, in a spreadsheet, the main difference is you don’t have to record each item separately – for example, if you have bought 10 packs of 100 pens at £3 each, you can record it as 1000 pens – £30. It is, however, important to keep the receipts for every separate purchase. Receipts must be kept for six years after you have filed your returns, as HMRC could decide to investigate at any point within this time.
Storing receipts can be done in a variety of ways and it is always best practise to keep the paper copies somewhere safe as well as backing them up digitally – receipts tend to fade, but digital backups will remain pristine forever. You can manually scan them or use a mobile app like Snap to record the details.
This covers all expenditures incurred, including hotel, meals, travel and any necessary training. Remember that this also must be within reason, HMRC will likely question a five course meal at the Ritz.
If you’re just away for the day, you can claim lunch costs if you exceed five working hours, this extends to dinner if you are working up to ten hours. As always, ensure that you keep receipts for everything. It’s also advisable to log all expenses in your accounting software, or on a spreadsheet, so that you always have the date and exact costs at hand in case HMRC decide to take a closer look. Also be aware that HMRC are suspicious of excessive use of taxis, particularly if they appear unnecessary – i.e. it was a very short journey.
You might avoid a fine if a close relative died shortly before the self assessment deadline, you've been seriously ill, or if you had major IT problems.