Frequently Asked Questions On Expenses

The company can claim tax relief on advertising and marketing costs for the business.

As it can be easy to confuse marketing with entertaining and HMRC may check this.

Invoices raised in good faith can be written off if it transpires that the customer can’t or won’t pay. The VAT on the bad debt can then be reclaimed only after 6 months after the invoice date. A provision for bad debt can be made in the company year end accounts.

This policy is not to be mistaken for raising a credit note. Credit notes are raised for a number of reasons but mainly because the original invoice is incorrect, not because the debt has gone bad.

A company making Gift Aid donations to charity can usually claim tax relief on the cost of these donations. For other charitable donations, the rules are more complicated and you should check with us.

The company may be able to claim tax relief for the cost of providing childcare facilities, or for funding the cost of childcare for its employees’ children.

To work, a child must be over 13 years of age; if under 14, they may only be employed in light work that is not likely to harm their safety, health or development.

There is considerable variation about what children are permitted to do at different ages in different areas, so all Heads and principals should be familiar with current LA by-laws on child employment.

The company can provide you with protective clothing that’s necessary for you to do your job. It can also provide you with a uniform that can only be worn at work to do your job. The company can either give these clothes to you outright or simply make them available to you. Although the company has to report these costs to HMRC on form P11D, there’s no extra tax for you or for the company to pay. If the company provides you with other clothing, this may be a taxable benefit.

For private and business use

If the company gives you computer equipment that you can use for business and also more than an “insignificant” amount of private use, the company will have to pay extra National Insurance as this is considered a taxable benefit.

Solely for business use

If the company gives you computer equipment that you use only for business and no more than an “insignificant” amount of private use, the company can claim tax relief for this cost and does not need to pay any tax or National Insurance, as HMRC does not consider this to be a taxable benefit.

Private equipment brought into a company

If you already own a computer, office chair etc and want to bring it into your business, you can claim tax relief for its market value at the point you brought it into the business. Check eBay for similar items and then include that cost in the company’s accounts. Don’t forget that if you are going to carry on using the equipment privately too, HMRC would consider this to be a taxable benefit.

Second-hand equipment brought into a company

If the company buys a piece of equipment second-hand, it can still claim tax relief on that equipment as a capital asset at the cost it bought it for because the equipment is new to the company.

If you travel for work on a bicycle that belongs to you personally (rather than the company, the usual rules for whether the journey counts as for business will apply (see: Travel). Assuming that your journey does qualify as a business journey, you can claim that expense from the company at HMRC’s approved rates.

The basic outline of the scheme is that the employer agrees to provide a cycle for a set period, usually between one and five years, during which the employee is free to use it privately, subject to the condition that it must be used primarily for ‘qualifying journeys’ (ie to work in a nutshell).

In return for use of the cycle, the employee agrees to a salary sacrifice. The amount of the sacrifice is entirely a matter for agreement between the employer and employee, there is no prerequisite figure. During the agreed period, the cycle remains the property of the employer.

At the end of the agreed period, the employer may offer the employee the opportunity to purchase the cycle at a second-hand valuation in line with HMRC’s published tables, depending upon the age and initial cost of the cycle.

The advantage for employers is that by carefully combining the savings in salary and NICs made under a salary sacrifice arrangement with the availability of capital allowances, VAT reclaim (if the employer is registered) and the ultimate sale proceeds, it is possible to provide cycles to employees at little or no overall cost to the employer, whilst enabling the employee to use and eventually acquire a cycle at considerably less that the full retail price, without suffering a taxable benefit in kind – therefore a win/win for both.

Depreciation is calculated each month based on the amount of fixed assets. Depreciation is an accounting adjustment to take into account the “useful life” of the asset and spread it’s value over time. This has the effect of creating an even charge on your profit and loss account throughout the year.

For Corporation Tax purposes depreciation is ignored and instead capital allowances are used. Over time the depreciation and capital allowance add up to the same amount but because of HMRC rules there can be timing differences between the two, which means the profit for accounting purposes and the profit for tax purposes will not always be the same.

Home

If you work from home and are the company’s sole staff member, you can claim back from the company a percentage of your household electricity costs, based on how much you use your home for business.

If you are not the sole staff member of the company, the costs you can claim become more complex, so you should check this with an accountant.

Office

The company can claim the full cost of heating and lighting your business premises for tax relief.

Entertaining clients

Unfortunately, neither you nor your company can claim tax relief for entertaining clients. There is no tax relief available on the cost of entertaining anyone other than bona fide payroll employees.

When the company is entertaining its employees, this may be allowable for tax relief in the business’s accounts, but it could also be a benefit on which the employees have to pay some tax.

In order for a party to be what HMRC calls a “qualifying event“ and therefore not a taxable benefit for its staff, it must meet all of these three criteria:

• It is an annual event (such as a Christmas party).
• It is open to all staff.
• It costs less than £150 per guest present.

If any of these three conditions aren’t met then the whole cost of the event becomes a taxable benefit.

The company can only pay you back for flights that you’ve personally paid for without HMRC considering this to be a taxable benefit in one of the following cases:

• If the flight was between business appointments, for example you’re a salesperson and you flew from one client appointment to another.
• If you were flying to or from a temporary workplace. In brief this is somewhere you expect to be working for less than 40% of your time for the next 24 months.

Flights are covered by the rules on travel (see Travel) so the company can’t reimburse you for travel from your home to a permanent workplace.

At your home office or other company offices:

If you are the sole director and the company has no other employees, you wouldn’t be able to claim the cost of food and drink that you buy to eat while you’re working from home or in your usual office. This is because HMRC takes the stern line that everyone must eat to live. If the company has other employees, it can provide basic food and drink (such as tea, coffee and biscuits) for them.

The company can also provide free meals at a canteen without having to pay extra tax and National Insurance, as long as the food and drink provided is available to all staff.

While travelling:

If you pay for food and drink yourself when you are away from your normal place of work on a business trip, you can claim that cost back from the company. The company can also include this cost in its accounts for tax relief.

Gifts to employees

If the company gives a gift to an employee, it may be subject to taxable benefit rules.

A small gift that celebrates a personal event for an employee, for example a bunch of flowers for an employee who has just had a baby, is one example of what HMRC calls a trivial benefit.

Trivial Benefits

The trivial benefits in kind (BiK) exemption applies to small non-cash benefits like a bottle of wine or a bouquet of flowers given occasionally to employees. By taking advantage of the exemption employers can simplify the treatment of BiKs whilst at the same time offering a tax efficient way to give small gifts to employees.

Although the benefit is defined as ‘trivial’, employers should remember that this offers a great opportunity to give small rewards and incentives to employees. The main caveat being that the gifts are not provided as a reward for services performed or as part of the employees’ duties. However, gifts to employees on milestone events such as the birth of a child or a marriage or other gestures of goodwill would usually qualify.

The employer also benefits as the trivial benefits do not have to be included on PAYE settlement agreements or disclosed on P11D forms. There is also a matching exemption from Class 1A National Insurance contributions.

The tax exemption applies to trivial BiKs where the BiK:

• is not cash or a cash-voucher; and
• costs £50 or less; and
• is not provided as part of a salary sacrifice or other contractual arrangement; and
• is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

The rules also allow directors or other officeholders of close companies and their families to benefit, but overall payments made in a tax year cannot exceed £300. The £50 limit remains for each gift but could allow for up to £300 of non-cash benefits to be withdrawn per person per year.  The £300 cap does not apply to employees. If the £50 limit is exceeded for any gift, the value of the benefit will be taxable.

Gifts to anyone else

If you give a gift to anyone who’s not an employee of the company, then the company can claim tax relief on that gift so long as it:

• is not food, drink, tobacco or vouchers
• costs less than £50 per recipient per year
• is prominently marked with your business’s name

If this is claimed as a company cost, HMRC classes this as a benefit in kind. It is then taxable and will appear on the P11d. This policy includes personal trainers.

The company can pay for this cover, the employee will attract a BIK (benefit in kind) charge as well as employers’ NIC on the total value of the benefit. Attracting a BIK charge means it will appear on the P11d.

You may decide to take out a permanent health insurance (PHI) policy through your company rather than personally to provide you with an income should you be unable to work. This is an allowable business expense, although you may be personally liable to pay income tax and NICs on any funds received via your income protection policy should you need to make a claim.

Overnight accommodation, eg the cost of a hotel, stay or rented accommodation, is allowable but must be for business purposes and the costs must be reasonable. You can claim accommodation and reasonable expenses for the evening meal and breakfast. Conditions:-

• If you were staying away from home for business purposes.
• If you were attending a business appointment.
• If you were at a temporary workplace (somewhere you expect to be working for less than 40% of your time for the next 24 months.)

Accommodation is covered by the rules on travel but travel from home to a permanent workplace doesn’t count as business travel. That means that the company can’t pay you back for the cost of hotel accommodation that you pay for personally if you stay overnight near your permanent workplace.

The cost of insurance for business, such as contents insurance for an office, or employer’s liability insurance, is fully allowable for tax relief. The company can buy private medical insurance for its employees, but in some circumstances this will incur extra National Insurance.

If a policy is a Relevant Life Policy then this should be tax deductible through the company. Also, premiums paid by the company are not treated as a benefit in kind for the employee.

In some cases, a company can provide medical treatment for its employees without HMRC considering this to be a taxable benefit. One example is if the employer pays for eye tests that are legally required for employees who have to use a computer screen.

If you travel on a business journey for the company in your own car, the company can pay you back per business mile travelled at HMRC’s approved rates of 45p for the 1st 10,000 miles and thereafter 25p per mile

Journeys in your car are covered by the rules on travel, so the company couldn’t reimburse you for travel from your home to a permanent workplace.

The company can provide you with one mobile phone, which could be a smartphone, without HMRC considering it to be a taxable benefit. Don’t forget that the contract for the phone must be in the company’s name.

Neither you nor the company can claim tax relief on the cost of fines or speeding tickets, even if you incurred these while travelling on business, because you incurred the cost while breaking the

When the company makes contributions to its own pension scheme for employees, it can claim tax relief on the cost of these contributions in its accounts up to a maximum annual investment amount of £60,000.

The company can claim the full cost of professional fees incurred for the business (for example, the fees a solicitor charges) for tax relief, except in the specific circumstances outlined in HMRC’s guidance.

The company can cover the cost of subscriptions to any of the professional bodies mentioned on HMRC’s lists without there being extra tax or NI to pay. If the company pays for a subscription to a body that’s not on HMRC’s list then that will count as a taxable benefit.

Don’t forget that the company must pay the cost of the subscription directly to the body. If you pay for a subscription to a professional body that’s on HMRC’s list and the company pays you back, that repayment gets treated as part of your salary and you have to pay PAYE on it (but not employee’s National Insurance).

If the company pays you back for a subscription to a professional or other body that’s not on HMRC’s list, the repayment is treated as part of your salary and you have to pay both PAYE and employee’s National Insurance on it.

Unfortunately, HMRC says that directors of limited companies can’t claim tax relief for fixed costs like property repairs, since they would pay these costs regardless of whether they worked from home.

As a Director of your company (i.e an employee) it may be possible to claim a relief from your company which exempts the first £8,000 of removal expenses and benefits. However, to qualify, removal costs must fall within specific categories of expenses and benefits and the change of residence must satisfy a number of conditions. The most important condition is that the employee must change his only main residence as a result of:

                * starting a new employment

                * a change of duties of the employment

                * or changing the place where the duties are usually performed

Also , the new residence must be within reasonable daily travelling distance of the new normal place of work and the old residence must not be within reasonable daily travelling distance of the new normal place of work. If your company wishes to pay for removal expenses and benefits then it would have to prove that the expense was incurred wholly, necessarily and exclusively for the purposes of its business. It is unlikely that this would be the case if you claiming for moving your home and therefore we think this could involve an enquiry from HMRC.

Note – HMRC would not allow contractors to claim this.

The costs of sponsoring a sporting event, concert, festival, etc. should qualify for relief if it can be demonstrated that the money is being spent to promote the trade. These rules can be complicated so please get in touch first.

If you personally pay for stationery that you and your colleagues will use at work, the company can pay you back for this without HMRC considering this to be a taxable benefit. The company can also include this cost in its accounts for tax relief.

Home

If you are the company’s sole staff member, work from home, and don’t have a separate phone line for business, you can claim from the company the full cost of all of the business use of your home phone line. You can also claim a percentage of the line rental, based on how much you use it for business purposes.

Make sure that the company doesn’t pay the phone bill directly to the phone company because this will count as a benefit that has to be taxed with your salary. Instead, you should pay the phone bill personally, then claim the business use of the phone back from the company.

If you are not the sole staff member of the company, the costs you can claim become more complex, so you should check with an accountant about this.

Office

If you have a separate phone line for business, make sure it is in the company’s name. The company should pay this cost directly to the telephone service provider. The company can claim tax relief on the full cost of the line rental and business calls.

If you personally pay for tolls and car parking while travelling on business, you can claim the full cost back from the company, and the company can include this cost in its accounts for tax relief. Even if you are claiming the cost per mile of journeys in your own car from the company (see: Mileage), this does not stop you also claiming back from the company the costs of tolls and car parking that you personally paid.

The company can only pay you back for train tickets that you’ve personally paid for without HMRC considering this to be a taxable benefit in one of the following cases:

• The journey was between business appointments, for example you were travelling from one client appointment to another.
• You were travelling to or from a temporary workplace. In brief, this is somewhere you expect to be working for less than 40% of your time for the next 24 months.

Train journeys are covered by the rules on travel (see below) so the company can’t reimburse you for travel from your home to a permanent workplace.

The company can only pay you back for travel expenses that you’ve paid for personally if the journey counts as a “business journey.” To be considered a “business journey”, it must fulfil one of these criteria:

• The journey was between business appointments, for example you were travelling from one client appointment to another.
• You were travelling to or from a temporary workplace. In brief, this is somewhere you expect to be working for less than 40% of your time for the next 24 months.

Travelling from your home to a permanent workplace doesn’t count as business travel, so your employer can’t pay you back for the cost of these journeys.

The cost of staff training is allowable for tax relief provided that you can show that the training is “wholly and exclusively” for the purpose of the company’s business.

The company may be able to claim tax relief on the cost of hosting a website if you think that the website will earn the company more money than it costs to host it. HMRC uses the analogy of a website as a “shop window” to clarify when the company can claim tax relief for the costs.

It may be possible to treat the website costs as capital and then depreciate the cost. Although, this can be complicated so please get in touch to discuss.