All businesses are expected to pay tax on their profits every year, but these can be legitimately reduced by making sure that you claim for all allowable expenses and tax relief.
The profits of a business are calculated by subtracting the expenditure you incur when running your business from the total income. This leaves the net profits, on which you will pay tax. There are various types of expenditure and they are treated differently by HMRC, according to what they are.
The cost of any goods or materials you will use to provide a service or product is tax deductible. You can claim for the cost of raw materials, the cost of any goods you will re-sell, or the cost incurred while producing a service or product. The items must all be used wholly and exclusively for the business.
Motoring expenses are another popular item of expenditure. This will include the car or van insurance, servicing the vehicle, repairs, tax, and fuel. If you use the vehicle solely for business purposes, you will be able to claim the whole amount back. However, personal use can’t be claimed and the cost of purchasing the vehicle will have to be claimed as a capital allowance. Motoring expenses can be complicated and it is advisable to contact a professional for advice.
Stationery and communications expenses can be claimed. These include the costs of running a fax machine, mobile phone, the internet, and land line, but don’t include the costs of purchasing the equipment. This cost will be claimed as a capital allowance.
Some legal costs can be claimed, including the price of an accountant, architect, solicitor and surveyor. However, you are unable to claim for the legal costs incurred when purchasing property or equipment.
If you have a workforce, you will be able to claim for the cost of wages, benefits, pensions and others incurred. You won’t be able to claim back the cost of any wages paid to yourself, or any other costs payable by you personally, rather than the business.
If you use a room in your home as an office, you will be able to claim the costs incurred. You can either claim a set amount from HMRC or you can claim back the actual amount of expenditure. This will involve splitting personal and business use and keeping accurate records.
You must keep accurate records of all expenses incurred during the year and be prepared to allow HMRC to inspect those records.