Business Expense Guide: Allowable & Non-Allowable Deductions

Expense Guide

This chart serves as a quick reference guide to determine the allowability of various business expenses for tax purposes. It categorizes expenses and provides clear explanations of whether they are deductible for corporation tax,
often with specific conditions or limitations.
This helps businesses accurately track and claim eligible expenses, minimizing their tax liability and ensuring compliance with tax regulations.

Employee Accountancy

Supervisor

All fees are allowable except for managing accounts for an unapproved off-shore scheme.
If company pays for the completion of self-assessment tax return then it is benefit in kind.

Accommodation

If the accommodation is job related for the better performance of the employee duties then no taxable benefit arises.
If accommodation is related to temporary workplace, it will be no longer available when the length of the contract is known to exceed 24 months.

Advertising

It is an allowable expense if it is done in the course of the business given that it is not a capital investment i.e. .long term or permanent.

Airfare

It is an allowable expense.

Annual Return fees

Allowable but no input VAT recoverable.

Bad Debts

If receivables are due for six months it can be written off from profit and loss account as bad debts. The VAT charged on it needs to be reversed from output VAT total.

Bank Charges

Authorised bank charges are allowable whereas unauthorised bank charges like unauthorised draft fees are non allowable.

Broadband

It is an allowable expense including Wi-Fi costs
if a contract between the company and broadband supplier exist
If the employee is required to work from home and he/she has incurred additional costs on it such as upgrade, devices are an allowable expense otherwise not.

Business gift (Corporate)

Gift made with the business element is an allowable expense. Adverts for alcohol, tobacco and food are not deductible

Business start up

Pre incorporation cost, PAYE registrations and setting up of the VAT are allowable.
Pre incorporation tax is not allowable against tax but reimbursement can be done if the directors have incurred the cost.

Capital Allowances

First Year Allowance (FYA) of 100% is available against low CO2 emission cars.

Car Hire

If the vehicle is used solely for business purpose, full expense is allowable
In case the vehicle is used for business and private use, it will be assessed on Mileage Allowance benefit.

Child care vouchers

Vouchers up to £55 per week given by employer to employee are allowable.

Christmas gifts

For Christmas gifts to be qualified there needs to be minimum of two employees. Then a gift of up to £50 in any year can be made but must not be purchase of food, alcohol or tobacco.

Charitable Donations

Donations to registered charity are allowable provided that it does not make loss while doing so, whereas donations to non-registered recipient are not allowable.

Clothing

Clothing for such as health and safety purposes or repres enting company brand are allowable expenses.

Company Formation

Full cost can be reimbursed by the company if the directors have incurred it, otherwise it is not allowable.

Computer Equipment

Annual Investment Allowance (AIA) up to maximum of £50,000 and £100,000 is available against plant and machinery including computer equipment before and after 1st April respectively.

Depreciation

For corporation tax purposes it is added back and is available on whole capital expense in its first year when the corporation tax return is filed.

Dues to professional bodies

Fees to certain professional bodies are allowable given that fees paid are relevant to the business duties of the employee.

Entertainment

Entertainment provided to customers and suppliers is not allowable. However if the director have paid for it, the company can reimburse them.

Eye tests

Employee using computer screen for the performance of duties are fully reimbursed for their eye test and company can claim it as an expense against corporation tax.

Hire and rental

Allowable expense if the hire of the equipment is used for business purposes.

Home working Expenses (Use of home as office)

No supporting evidence is required to claim an expense of £3 per week.
EIM32810 allows to claim additional costs if the director works from home on more permanent basis.

Incidental overnight expenses

Overnight expenses of £5 and £10 per night can be claimed for UK and overseas respectively.

Insurance

No input VAT can be recovered on insurance products.
Limited company is legally obliged to have Employer’s Liability Insurance for the employees other than its director/ shareholder.

Interest on loans

Interest charged on loans or alternative finance obtained for business purposes is allowable.
Company can also claim as an expense on its tax interest due on late payments.

Leasing rental

There are two types of leases available, finance lease and operating lease.
Finance lease is usually for longer term and its asset is recognised on to the balance sheet with depreciation charged against it which is allowable against corporation tax.
Operating lease is usually for shorter term and is not recognized as an asset. Instead rental payments are paid which is allowable aganst corporation tax.

Legal costs

Costs incurred for business purposes are generally allowable except incurred for fraud, fines or in relation to capital items.

Magazine and books

Allowable as an expense only for business purpose.

Marketing cost

Allowable expense

Medical Insurance

Allowable expense and no benefit in kind charge applies to the employee’s annual medical check-ups and to the cost of insurance if working abroad.

Medical treatment

Employee getting disease or injury in relation to work, the expense of its treatment is allowable and no benefit in kind charge will be applied given that employer pays directly to the supplier.

Mileage

Under HMRC rules mileage allowance is given at the rate of 40p per mile for the first 10,000 miles and 25p for thereafter in a given tax year.
Whereas mileage allowance for bicycle and motorcycle is 20p and 24p respectively for all miles.

Mobile telephone

Allowable against corporation tax. No benefit in kind charge would arise if used by employee only(no family members)

National Insurance Contribution

NIC’s are tax deductible

Office parties

Allowable expense. No benefit in kind charge would arise given that the value does not exceed £150 per employee and the event Is for all employees.

Office rental

Allowable expense and deduced against corporation tax.

Passenger mileage

5p per mile can be claimed if a passenger is travelling for business journeys.

Parking

Allowable expense. An employee can be reimbursed for the parking done nearby working purposes.

Patent costs

Costs incurred, whether granted or refused are allowable

Pension contributions

Tax deductible expense if company makes contribution to an executive company pension scheme.

Postage

Allowable expense. Input VAT can be claimed if postage is sent through private company.

Professional fees

Allowable expense if incurred for the business.

Printing

Allowable expense.

Salaries and wages

Allowable expense.

Software

If the life of the software is less than 2 years it is an allowable expense,
If more than 2 years, it is not allowable as it is capital expenditure

Stationary

Allowable expense

Taxi fares

Allowable if wholly and solely incurred for business purpose.

Telephone

Landline telephone issued in company name is an allowable expense.
Home used as an office can claim telephone expenses

Training

Training cost incurred to enhance the ability and performance of the employee is an allowable expense

Training manuals or books

Training manuals or books used in the course of the business is an allowable expense. If it is used for self-interest purpose then it would be regarded as benefit in kind.

Travel

Allowable expense if incurred for business purpose, whereas travel between home and a permanent work place is non allowable.