Dear Mr Tax Man… our no-nonsense guide to business expenses for social enterprises
When working for someone else, the word ‘expenses’ usually refers to a spreadsheet you’re expected to fill out every month that accounts for your subsistence, accommodation and anything else that was paid for during business outings.
When working for yourself or running your own enterprise, expenses become something rather different. If truth be told, they’re yet another accountancy black hole down which many an inexperienced entrepreneur has fallen. And we’d rather that didn’t happen to you!
Expense claiming for self-employed workers and limited companies in the UK is actually relatively straightforward, but one look at HMRC’s seemingly endless list of rules and regulations may force you to think otherwise.
In this blog, we’re going to dispense with the acronyms, reams of small print and perplexing language by providing a no-nonsense guide to business expenses for social enterprises. And, while not a definitive list of every claimable expense, we’ve picked out the most common that will apply to businesses across a range of industries.
Please note: the details and advice contained within this post are all correct at the time of writing (Feb 2017), but are subject to change at the Government’s discretion. Please always refer to gov.uk for the most up-to-date information.
It’s easy to neglect the costs that mount up in the months before you fully open your social enterprise. As you’ll know all too well, getting set up initially isn’t a cost-free endeavour, and you’ll have to invest in a number of essential tools, marketing materials and various other services before you can get your enterprise off the ground.
These may include web design, premise preparation and purchase, staff hires and travel expenses. Whatever they are, ensure you keep hold of every receipt associated with each purchase – you may need them further down the line.
If VAT registered, you can also claim back the VAT on purchases made up to four years before you became registered (some conditions apply).
Tax deductions relating to training are easily confused due to slight variations in legislation depending on the type of training invested in and the employee to whom it is delivered.
For example, if the business purchases training for the proprietor which is geared towards learning a new skill, the associated costs aren’t usually tax deductible. However, if the training instead focuses on updating existing professional expertise and skills, you should be entitled to make a claim.
It’s believed that one in seven people now work from home in the UK, and with so many workers shunning the traditional office environment for the comforts of their abode, it’s vital that business owners understand the tax benefits of doing so.
If your social enterprise or method of working demands that you set up shop at home for significant periods of time, you could be eligible for work-related expenses that cover the use of heat, lighting, broadband and telephone calls. Check with your accountant for full details.
If your social enterprise operates within the B2B sphere, there’s a good chance you’ll need to occasionally take to the road in order to meet clients and partners. If so, you can currently claim a mileage allowance of up to 45p per mile for the first 10,00 miles (25p thereafter).
Common limited company expenses
If your social enterprise has been incorporated, there are a significant number of business expenses you are allowed to set against corporation tax, thus reducing the bill when your end of year profits are calculated.
Here are some of the most common limited company expenses:
- Accommodation costs (when away from the business HQ)
- Stationary, printing costs and postage
- Business insurance
- Technology purchases (computers, software, etc)
- Advertising costs
- Christmas parties (up to £150 per employee, per year, including partners)
- Hire purchase agreements against the company name
- Employer’s national insurance contributions
- Professional fees (e.g. solicitors and accountants)
There are more limited company expenses that are tax deductible, but we recommend speaking to your accountant for further advice.
Wrapping up: remember to keep track of everything!
We hope this guide has provided a valuable, jargon-free overview of business expense claiming. It doesn’t have to be a minefield, providing you remember to abide by the golden rule: keep track of everything!
Retain all receipts, make a note of mileage and file everything away safely. Chances are, you’ll only need to refer to it come end of year time, but if HMRC ever need to dip into your records, you’ll thank yourself for having them close to hand.