Posted in: New start-ups

Expenses Checklist

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What you can include

We recommend that you look at everything you spend and and ask whether there is a business related element to it. If there is, then it is likely that you can claim all or a proportion of it to reduce your tax bill. If in doubt include it in your expenses along with a note for us and we will review it at year end.

Compare your expenses to the following checklist to see if there is anything else you can claim for:

  • Purchases – of goods and materials for resale
  • Subcontractor costs – people who you sub-contract work to
  • Employee costs – people who work for you on a PAYE basis
  • Premises costs – rent and rates paid
  • Working from home expenses – if you do any work from home (or store business-related things there) you can claim a percentage of your household costs including mortgage interest
  • Repairs and renewals – if this is for property you own and relates to new build or new features (rather than upgrades or replacements) then it may need to be added to fixed assets. Please let us know details
  • General administration expenses – don’t forget to claim for any cash items you pay for personally such as postage, computer consumables, stationery etc.
  • Motor expenses – you can either claim the actual costs (petrol, repairs, MoT, insurance etc.) or a mileage allowance. If you haven’t kept all your petrol and repair receipts then you will need to let us have a note of your mileage
  • Other travelling costs – include a proportion of long-distance trips and holidays if they contain any work related element such as attending business meeting, exhibitions, networking, or doing market research. Don’t forget to make an assessment of parking charges etc.
  • Subsistence – costs for accommodation, food, and and general expenses incurred whilst working away from home
  • Advertising and marketing – don’t forget any networking costs, even social meetings can have a claimable element if it may lead to business
  • Entertaining – there are strict rules on this and we will need to go through this with you. You cannot claim for business meals held within 3 miles of your home
  • Accountancy – all accountancy and bookkeeping costs are fully claimable
  • Staff party – if you have employees you can spend up to £150 per head on one annual staff event such as a Christmas party
  • Other legal and professional costs – these can be claimed if they relate to the business but you cannot claim fines or penalties as expenses
  • Bad debts – you can deduct any unpaid sales invoices if the likelihood is they will not be paid
  • Interest payments – these are allowable and will be shown on the bank statements
  • Bank charges – these are allowable and will be shown on the bank statements
  • Other finance charges – if you have any Hire Purchases or finance leases then you will need to let us see the contracts as we have to separate the interest and capital repayment elements
  • Fees and subscriptions – to professional and work-related bodies
  • Books and periodicals – if these are work-related then you can claim for them
  • Workwear – ordinary clothing is not allowed, but if they display the company name or logo then it will be allowed
  • Safety/protective clothing – high visibility jackets or steel-toed boots are allowable but not ordinary clothing, even if it is bright. If it can be worn socially then it is usually not allowed
  • Staff training and development – technically, this includes upgrading existing skills but not learning unrelated or completely new ones (barmy, but that’s the rule)
  • Mobile phone costs – we usually allow 100% of mobile phone costs used by the business
  • Director’s salary – if paid by a limited company through a PAYE scheme. Ordinary ‘drawings’ are not allowed
  • Capital equipment – such as computer equipment. If you have a camera, iPad, laptop or video does it have a business usage? If so let us know.

Additional first year expenses

Additionally, in the first year of trading you can claim a ‘fair value’ for any plant, equipment, or tools that you already own and introduce into the business, particularly:

  • Computer equipment and software
  • Machinery
  • Tools and equipment
  • Raw materials
  • Other related goods

You can also claim for:

  • Company formation costs
  • Pre-trading expenses – for market research, building prototypes, preparing business plans etc.

What you can’t include:

  • Payments for your own time
  • Your personal drawings – businesses are taxed on their profits, irrespective of whether they are left in or taken out of the business
  • Ordinary clothing – unless it falls into one of the categories above
  • Travel to a single place of work
  • Depreciation – instead HMRC allow you to claim Capital Allowances (we have a separate article on this). We will work this out for you.

The above is a general guide only. Detailed rules apply in many cases and we will guide you on the specifics when we prepare your accounts and tax return.

New start-ups – the basics

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Nearly all small businesses hate administration. If you are a small business you will be working out what you have to offer, who will want it, and then working flat out to market your product to them.

And more often than not it’s the admin gets put to one side whilst you’ve got more urgent and pressing things to do.

But there are some things you need to get right at the start, or they will come back to haunt you. In this article we examine some of the basic questions you should be asking.

Do you actually have a business?

Some people who buy and sell might argue that their activities are ‘just a hobby’ and not a ‘proper business’. This frequently arises where people sell online and claim it is not a business because they are doing it outside of their normal working hours, or there are ‘not many’ transactions.

Unfortunately, the taxman frequently disagrees, and is devoting ever more resources to discover these ‘businesses’ – and the lost tax revenues. In deciding whether a business exists the taxman will ask:

  • Does the person use the products themselves?
  • Are there more transactions than necessary for personal use?
  • Are the goods sold on?
  • Has a payment or e-payment service been set up?
  • Are the products advertised?

Generally, if it looks as if the goods are being bought with the expectation of selling them on for profit, then the taxman will argue it is a business. And if the business has not been registered with them this can raise the possibility of several years backdated fines and penalties. Ouch!

So, what sort of businesses are there?

The main types are:

  • Self-employment (sometimes called sole-traders) – these are ‘unincorporated’ businesses in which the business owner is effectively the business, and is personally liable for its debts. This includes insurance and negligence claims – even if caused by other members of staff or sub-contractors
  • Partnerships – these are also ‘unincorporated’ businesses where several people are, effectively, the business. Each partner is personally liable for the debts of the business – including mistakes made by their fellow partners. For this reason they are not a popular choice these days
  • Limited companies – known as ‘incorporated’ businesses, which are separate legal entities from their owner(s). The debts belong to the company and the owners cannot be personally sued, unless there is evidence of illegality
  • Charities and voluntary groups – individuals can take salaries for work done but profits cannot be distributed and must remain in the business.

Should I convert from being a sole trader or partnership to a limited company?

Some of the main considerations are:

  • As the owner of a limited company you are not personally liable for its debts. If the company gets in financial trouble or is sued because of an accident or mistake, then you are not personally responsible. Your own assets are not at risk
  • You do not pay national insurance on the profits. This may seem a minor point, but if you are self-employed you will pay 8% of the profits which can soon amount to well over the costs of becoming limited. For example, on profits of £15,000 the national insurance savings alone will be £1,200, compared to additional admin costs of around £300
  • It has greater kudos and may look more professional to some clients or funders.

Do I need to fill in a tax return?

The answer is ‘yes’ if you are buying and selling goods for profit or providing your services on a commercial basis.

And it’s a ‘yes’ too if you are a director of a limited company – even if no tax is due.

Confused? Hopefully not. But if you are our role in life is to take away the problems of accountancy and tax, and let you get on with what you do best – running your business.

Disclaimer
Please note that we cannot be legally responsible for general advice. This information is provided on a general basis and professional advice should always be taken by individuals.