Careers in Fitness Global
Make sure you’re claiming your small business expenses correctly
When you’re selling business services, you will incur business costs and expenses, and only some of them can reduce your tax bill. But are you aware of which costs can – and can’t – save you tax?
Emily Coltman FCA, Chief Accountant to FreeAgent – who provide an award-winning online accounting system for small businesses and freelancers – examines five common costs which are not straightforward for tax.
Food and drink
We must all eat in order to live, and for that reason, HMRC put restrictions on when you can claim food and drink when you’re working.
For a sole trader, you can only claim the cost of food and drink when you are:
- Staying away from your usual base overnight on business, or
- Making a journey that’s outside your normal pattern of business (for example, you go to an event in a different town), or
- Running a business that is by nature itinerant. HMRC have expanded on this by saying that your business will be itinerant if you spend a period of time at a given client site to carry out a temporary job of work, and then move on to a different site to do a different piece of work – for example, a jobbing builder or chimney sweep.
If you’re employed, including by your own limited company, then you can claim the cost of food and drink when you’re travelling on business.
Travel and accommodation
For tax relief to be available on the cost of travel and accommodation, your journey must be for business purposes only. If the journey includes some private elements as well, then you can only claim the business part – so long as you can easily split that out.
For example, if you spend two nights in London on business and then stay an extra night to see a show, you can claim tax relief on the cost of your first two nights only. A hotel bill is easily apportioned.
But if you can’t divide out the private element, for example if you travel to town to pick up your business cards and then collect your child from school in the next road, you can’t claim the cost of any of your journey.
When you’re an employee, if your employer pays the cost of private (non-business) travel back to you, that’d be a taxable benefit.
Home-to-work travel will almost always not count as a business journey, because HMRC see that as enabling you to live where you do – not work where you do.
Journeys in your own car
Many freelancers travel on business in their own cars.
If you’re a sole trader, or in a partnership where none of the partners are limited companies, your business’s sales are under the current VAT limit (£83,000 a year from 1st April 2016), and you haven’t claimed capital allowances on your vehicle, then you can use what I call the “mileage method” to track your travel. Add up your business mileage, and then claim 45p/mile for the first 10,000 miles you travel on business in the tax year (6th April – 5th April), 25p/mile thereafter. If you use more than one car or goods vehicle (van or lorry) in your business, you only get 10,000 miles to use for all your vehicles – not 10,000 miles for each vehicle.
Employees can also claim business mileage back from their employer using these rates.
If you don’t fit the criteria outlined, then you’ll need to work out how much you use the car for business (by taking your business miles as a percentage of your total mileage), and apply that to all the car’s running costs, such as petrol, servicing, MOT, repairs, insurance and so on. You can then claim tax relief on this amount, and you can also claim capital allowances on the cost of your car. You can also use this method even if you’re a sole trader or partnership and you qualify to use the mileage method – the mileage method is not compulsory – and it may result in extra tax relief if you drive a gas-guzzler.
Business use of home
A lot of service-based business owners work from home rather than having an office or shop.
If you fit the same criteria as for the mileage method above, then as from 6th April 2013, you can claim a flat rate allowance for your business home costs, which is based on the amount of hours you work at home each month:
- 25-50 hours per month: claim £10 per month
- 51-100 hours per month: claim £18 per month
- 101+ hours per month: claim £26 per month
This includes an allowance for all your home running costs used by your business, including home phone and broadband.
If you don’t fit these criteria – or if you do fit the criteria but you don’t want to claim the flat rate allowance – you can claim a percentage of your actual home running costs for your business.
The cost of going to networking events would be allowable for tax relief, and so would the cost of attending them. Be careful if you buy food or drink there for anyone who’s not an employee, though, because that wouldn’t be allowable.
For more information about other expenses that can be claimed, check out our whitepapers for sole traders and limited company directors – and remember to always check with your accountant if there is anything that you are not clear about.
Emily Coltman FCA is Chief Accountant to FreeAgent, who provide an award-winning online accounting system designed to meet the needs of small businesses and freelancers.