Whenever I first meet a start-up business, I am always asked ‘What expenses can I claim?’ The answer is, ‘It depends.’ Allowable expenses vary between business sectors and whether you are a sole trader, partnership or a limited company – unfortunately, there is no one size fits all solution.
For this month’s column I look at four types of business expenses and what can be claimed.
Home office costs
Sole traders and partnerships can claim a proportion of utility bills, rent or mortgage interest, depending on how often the home is used and the number of rooms in the house. Capital repayments on mortgages are excluded. Alternatively HMRC’s ‘Simplified Expenses’ flat rate allowances could be used. Limited companies can either pay a flat rate of £4 per week, or enter into a license agreement to rent the property from an employee or director.
Sole traders and partnerships can claim a proportion of phone bills based on business usage. A limited company can provide a mobile phone to an employee and the whole phone bill is an allowable expense if the contract is with the company.
Sole traders and partnerships often have it better when it comes to cars for business usage. A proportion of running costs and the car itself (spread over several years) are allowable expenses. For limited companies, high taxation on cars often makes purchase only worthwhile for very eco-friendly vehicles. If the employee uses their own car for business, employers can choose to pay a 45p per mile allowance for the first 10,000 miles instead.
Childcare costs are not allowable expenses for the proprietor of a sole trader business or a partner in a partnership. Limited companies can pay employees up to £243 per month for approved childcare. But most use a Childcare Voucher provider – these ‘middleman’ companies and their costs can be avoided if the employer contracts directly with the OFSTED registered childcare provider.
If you have any queries on expenses and your business, contact me.