Whether you are a Limited Company veteran or just starting out for the first time, the HMRC rules on company expenses can be complex.
The ground rule to keep in mind is that you can only reclaim expenses that have been incurred ‘wholly, exclusively and necessarily’ for the everyday running of your business.
How to claim expenses
You can pay your company’s expenses either:
- Directly from the company accounts
- Or as a ‘reimbursed expense’ for when you have paid for expenses personally.
Keep all original invoices as proof of purchase and keep a record any time you reimburse yourself from the company funds.
Types of expenses you can claim:
- General Expenses
Minor purchases such as postage, paper, coffee, tea and office stationary.
- Equipment Expenses
Computers, printers, stationary, software and furnishings such as chairs, desks and shelves.
- Fuel or Mileage
You can either claim for mileage, or you can claim for vehicle running costs (including fuel).
You cannot claim for both.
Mileage Method
With the mileage method, you can claim 45p back from the company for every mile you have driven.
The 45p rate does not just cover the cost of fuel per mile. It takes into account the general wear and tear on the car and aims to cover the cost of fuel, running costs and repairs.
Running Costs Method
With the Running Costs Method, you must work out what percentage of your journeys are for business use (i.e 70%), and then claim this percentage back off the following running costs:
- Insurance
- Repairs and servicing
- Fuel
- Licence fees
- Breakdown charges
Please note that using the Running Costs method for company cars will classify as a Benefit in Kind and will attract additional taxation.
Whichever method you choose, you must detail all business journeys on a spreadsheet.
- Travel Expenses
You can claim tax on public transport, accommodation, congestion charges, tolls and parking. Parking fines are not claimable.
You can also claim lunch costs if you are working away and the working day exceeds five hours. This extends to dinner if you’re working up to ten hours.
- Staff event expenses
You can claim up to £150 a head per annum for company parties. For more information, read our blog post here: https://bit.ly/2NAnFpg
- Accountancy Fees
You can claim for accountancy fees related to your Limited Company, including formation costs.
- Marketing Expenses
Expenses incurred from marketing campaigns, services and products are claimable.
- Charitable Donations
You can deduct the value of donations from business profits in order to receive tax relief. Donations include giving money, sponsorships, equipment, land, property or shares in other companies to charities.
- Professional Development
Courses, lessons, books and learning materials are tax deductible, providing they relate to current work duties and aim to improve existing skills necessary for the job.
- Phone and Internet Expenses
Communication utilities for business use such as phone and broadband can be claimed.
If you work from home, you cannot claim VAT on existing residential broadband or phone lines unless you can clearly split the business from the personal element.
Final Note
Always keep expense-related receipts and paperwork safe for at least seven years after you have filed your tax returns, as HMRC may decide to investigate your expenses at any point within this time.
