Business expenses refer to the costs incurred by a business to operate and generate revenue. These expenses can range from office supplies and rent to travel expenses and employee salaries. Claiming business expenses can be highly beneficial for a business as it can help reduce the amount of taxable income, resulting in lower tax payments. This guide offers to answer the question of what is a business expense, an overview of business expenses, and how to accurately claim them.
What are business expenses?
Business expenses refer to costs incurred during a company’s operations. Examples vary depending on the business but often include rent/mortgage payments, utilities, marketing, salaries, equipment, and more that help keep your business going.
Businesses can improve their financial stability and profitability by closely monitoring and managing expenses, identifying areas where costs can be reduced, and positioning themselves for long-term success.
What business expenses can be claimed?
As a business owner, it’s important to know what expenses can be claimed to help reduce your tax burden. While some are more obvious, such as rent, office supplies, insurances etc, others you may not be aware of, such as marketing and advertising expenses, travel expenses, and even home office expenses if you work from home.
Below, we break down the different types of business expenses that you can claim on your taxes, as well as some tips for keeping track of your expenses throughout the year. Examples of business expenses are:
- Rent or lease payments for the business location.
- Property taxes on the business premises.
- Utility bills, such as electricity, gas, water, and internet.
- Maintenance and repair costs, including cleaning services and necessary repairs to the building or equipment.
- Insurance premiums for the business property and liability insurance.
- Depreciation on the value of the building and any equipment used for the business.
- Computer hardware such as monitors, keyboards, and mice.
- Software licenses for programs such as Microsoft Office or Adobe Creative Suite.
- Desk chairs and other furniture.
- Filing cabinets and storage boxes.
- Writing utensils such as pens, pencils, and highlighters.
- Sticky notes, paper clips, and other small office accessories.
- Printer ink and toner cartridges.
- Envelopes and postage stamps for mailing documents.
- Whiteboards, markers, and erasers for presentations and brainstorming sessions.
- Vehicles: Both owned and rented vehicles used for business purposes. It’s important to keep track of mileage and expenses related to the vehicle, such as gas, maintenance, and repairs.
- Tickets: Any transportation tickets, such as plane tickets, train tickets, and bus tickets, can be expensed as long as they are used for business purposes.
- Taxis and ride-sharing services: Expenses related to using taxis or ride-sharing services for business purposes can be expensed as well. This includes services like Uber, Lyft, and traditional taxi companies.
- Shipping and freight costs: If your business involves shipping products or materials, the costs associated with this can be expensed. This includes shipping fees, freight costs, and any other related expenses.
- Parking and tolls: Expenses related to parking and tolls can also be expensed. This includes parking fees at airports, tolls on highways, and any other related expenses.
- Computers: Computers are crucial in today’s digital age for most jobs, and if used for business purposes, they can usually be expensed as a business cost.
- Machinery and Tools: Some industries require the purchase of machinery or tools, such as heavy machinery for construction or power tools for carpentry work.
- Office Furniture: Working from home or having a designated office space may require purchasing furniture such as a desk, chair, or filing cabinet, which can be expensed as a business cost.
- Vehicles: If you use a vehicle for work-related purposes, it can be considered a business expense, whether it’s a company car or a personal vehicle used for work-related travel.
- Communication Devices: Communication devices like mobile phones and tablets are necessary in today’s connected world for staying in touch with colleagues and clients for work purposes.
Legal and professional services
- Accountants: An accountant can help you keep track of your finances, prepare tax returns, and ensure compliance with government regulations. These services can be expensed as a business expense.
- Lawyers: Legal services can be expensive, but they are necessary for protecting your business interests. Whether you need help with contracts, intellectual property, or other legal matters, the fees charged by lawyers can be expensed.
- Marketing and Advertising Services: If you hire a marketing agency to run campaigns or create promotional materials for your business, these costs can be expensed.
- Consultants: If you hire a consultant to help with a specific project or to provide expert advice, their fees can be expensed.
- Insurance: Business insurance is a necessary expense to protect your assets, employees, and customers. Premiums paid for insurance policies can be expensed.
- IT Services: Fees paid to IT service providers for computer system setup or maintenance can be expensed.
- Human Resources: Businesses can expense fees paid for HR consultants or staffing agencies that assist with hiring, training, or managing employees.
- Uniforms: Clothing required as a condition of employment, such as branded shirts or hats, can be expensed, including traditional uniforms and casual options like company t-shirts.
- Safety clothing: Employers can expense protective clothing like steel-toed boots, hard hats, gloves, safety glasses, and reflective vests for their employees who need them for job-related hazards.
- Protective gear: Specialised clothing, like hazmat suits, respirators, and thermal underwear, may be necessary to protect employees from environmental factors in certain industries.
- Work-related accessories: Other work-related accessories like tool belts and work boots may be reimbursed, but ones that can be worn outside of work are generally not eligible expenses.
Material and stock
- Paints and coatings.
- Adhesives and sealants.
- Nails, screws, and other fasteners.
- Lumber and wood products.
- Plumbing and electrical supplies.
- HVAC components.
- Flooring materials.
- Roofing materials.
- Windows and doors.
- Insulation and weatherisation products.
- Cleaning supplies and chemicals.
- Safety equipment and personal protective gear.
- Workshops and seminars conducted by industry experts.
- In-house training sessions for employees.
- Online courses and e-learning programs.
- Conferences and networking events relevant to the company’s industry.
- Professional development courses for employees.
- Training programs that help employees acquire new skills.
Other types of expenses that can be considered:
- Travel expenses for business trips, such as airfare, hotel accommodations, and meals.
- Office supplies and equipment, such as computers, printers, and stationery.
- Marketing expenses, including social media, print, and billboard ads.
- Rent and utilities for office space.
- Insurance premiums for business insurance policies.
- Legal and accounting fees for professional services.
How to claim business expenses?
Claims can be submitted to HMRC online or by post, but it’s essential to be honest and accurate to avoid any potential issues or fines. Remember to make sure that expenses claimed are solely for business purposes and keep records for at least six years.
Recording your business expenses
Keeping track of business expenses for taxes is a crucial part of running a successful business. By recording your expenses, you can effectively manage your finances, monitor your business’s financial health, and make informed decisions about future investments.
- Tax purposes: Keeping accurate records of your expenses can help you claim deductions and reduce your tax liability. It can also help you avoid any issues with tax authorities if you are ever audited.
- Identifying areas of overspending: By analysing your expenses, you can determine where you can cut costs and save money.
- Budgeting: If you know how much you’re spending and where you’re spending it, you can create a realistic budget that aligns with your business goals.
- Tracking profitability: If you compare your expenses to your revenue, you can determine your profit margins and make adjustments as needed.
What is the tax-free trading allowance?
The UK government provides a tax-free trading allowance of £1,000 to small businesses and self-employed individuals, allowing them to earn profits up to this amount without paying taxes. This benefit is useful for those with limited profits, helping to reduce their tax burden and reinvest their profits. Accurate record-keeping is required to claim this allowance, which can be used to offset business expenses. The allowance can be claimed by sole traders and partnerships when filing their annual tax returns.
What are the benefits of claiming business expenses?
While it might seem like a tedious task, the benefits of claiming expenses are numerous and greatly impact the overall financial success of a business. Some of these benefits include:
- Save your business money: Claiming business expenses can lower taxable income, resulting in reduced tax payments and potential savings. This can provide extra funds for other business areas.
- Ensure you’re not overspending: Claiming business expenses allows you to track spending, identify areas for potential cost reduction, and avoid overspending on unnecessary items.
- Help you be better at checking finances: Claiming these expenses can provide you with financial clarity, allowing you to track spending patterns, make informed decisions, and achieve your financial objectives.
Hire an expert
Hiring an experienced accountant can relieve the stress of managing finances and taxes, allowing business owners to focus on running their businesses.
CloudAccountant.co.uk offers reliable and experienced accounting services for businesses of all sizes and industries, including bookkeeping, tax preparation, and financial reporting.
Hiring an expert accountant saves you time, helps you make informed decisions, and ensures compliance with tax laws.
Why choose CloudAccountant.co.uk?
CloudAccountant.co.uk is a dependable and efficient accountancy service that, with over a decade of experience in the industry, has established itself as a platinum partner with award-winning software like Xero and FreeAgent. We also collaborate with transactional software systems like LinkMyBooks, A2X, and Dext to support different aspects of a business.
Our team has diverse industry experience and caters to specific company requests, providing high-quality service in a timely and effective manner.
Get in touch!
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