If you are a sole trader your tax bill can have a huge impact on your cash flow and the overall success of your business. So it makes sense to know what tax deductions you can claim – it’s all part of good small business expense management.
Allowable tax deductions
Her Majesty’s Customs and Revenue (HMRC) allows you to deduct the cost of certain expenses as long as they are incurred wholly and exclusively for the purpose of your business. It’s worth talking to your accountant or tax adviser so that you know exactly what’s allowed and what’s not – some of the things that you might assume are included, such as buying lunch for clients, may not be allowed; whilst other deductions may be available that you hadn’t even thought about.
Our list isn’t exhaustive, but it does cover the main deductions you might be able to make. Some of them are relevant if you have people working for you and provide certain employee benefits; others are applicable to all small business owners.
1. Your premises
Whether you work from home or you rent office space, you can offset your costs against your tax bill. If you are renting space, this is fairly straightforward, as you will have all the paperwork, invoices and details of what you have paid. If you work from home, it’s a little more complicated, as you need to charge a percentage of your overall home ownership costs, based on how much room you use in your home and how often you work there.
2. Your transport
Most business owners need to go out to see clients, suppliers or partners, and you can claim these costs back. This covers all forms of transport – the HMRC even has a per-mile allowable amount for cycling – so keep note of mileage or public transport tickets that are directly related to your business. This includes any foreign travel you may need to do. You may also be able to offset the cost of a new vehicle if it is being used for business purposes.
If you have to stay away from home for business purposes – perhaps so that you are ready for an early morning meeting, or because you are attending a conference – you can claim for your hotel stay. Check with your accountant about claiming for food and drink which is allowable if the journey qualifies as business travel.
4. Phones and tablets
As any virtual assistant expense management expert will tell you, calls that you make on behalf of your business are fully allowable – whether they are from your home phone, your mobile or via a paid-for internet provider. If your mobile phone is also for personal use, you may only be able to claim a percentage of the cost.
Interest payments on both loans and overdrafts that are incurred on behalf of the business are tax-deductable. Accountants may advise that you put loans through your business for this reason. Any loan or overdraft payments you incur on a personal basis are not allowable.
6. Business training
This can be tricky, so do get professional advice before you claim training as a deduction. Standard advice is that training that results in you learning something completely new is regarded as a capital expense, whereas training that simply refreshes existing skills or knowledge is deductible. Worth checking this out – so that whoever you have to manage business expenses – a virtual assistant or bookkeeper – has the benefit of professional tax advice when they are handling your finances.
7. Decoration and refurbishment
If you have premises where you see customers and you need to decorate, refurbish or refurnish these areas, you may be able to claim tax deductions. Again, check with your tax adviser, because some elements of this type of work may be counted as capital expenditure rather than general deductions.
8. Pension contributions
You should be making regular pension contributions, either personally or through your business. There are various types of tax relief for pension contributions, based on pre-set limits. Talk to your financial adviser and tax adviser about how to make the most of these tax reliefs so you can build up a good pension whilst running your business.
9. Staff entertainment
If you have employees in your business, you are allowed to spend up to £150 per staff member per year on annual events such as Christmas parties or summer excursions. The events must be open to all of your staff in order to qualify for tax relief, so make sure that your virtual assistant, expense manager or internal bookkeeper has clear records of how much you’ve spent and what you’ve spent it on.
10. Family-related expenses
If you can show that a family member is directly working for your business, you can pay them a salary, which you can then claim as an expense. Your family member must be engaged in working for the business – even if it’s only on the basis of a few hours per week – in order for you to claim this as a legitimate cost.
Keeping track of your expenses can be time consuming – receipts and invoices to file and spreadsheets or accounting packages to keep up-to-date. It’s usually far more cost-effective to outsource this type of admin than to spend your evenings doing it yourself. A good VA team will have an experienced expenses team member who can manage things for you on an ongoing basis, giving you clear and accurate information that you can send to your accountant when your tax form is due.