Running a limited company does not only include running day to day operation of the company but also ensures that every allowable expense is claimed correctly. If the management is done carefully you’ll substantially save on Corporation Tax and free up cash to invest. So many business owners have come to realize that working with accountants for limited company gives you the benefit of being able to take advantage of this complex tax system.
Understanding Allowable Expenses
Only the expenses that are incurred wholly, exclusively and necessarily for business activities are allowable to be claimed by limited companies. Differentiating between expenses that are strictly business related and those that have a personal element blended in with the professional is crucial. Only the business element of any mixed expense can be claimed, and mixing this up can cause problems in an HMRC review.
Business Travel and Subsistence
Travel Costs
Many of the costs associated with your directors or employees travelling for work can be recovered as allowable expenses. These costs include:
Transportation: Business related train fares, mileage, taxis or car hire.
Accommodation: Hotel stays or other lodging on a business trip that necessitates an overnight stay.
Subsistence: Meal and incidental costs incurred while travelling for business purposes.
Additional Expenses: Parking Fees, Tolls, Congestion Charges, Business related phone calls made on the move.
One of the most important things to do is to differentiate between personal travel and business travel. For example, if a business trip is combined with leisure, only the business related expenses are allowable.
Keeping Detailed Records
Make comprehensive records of every journey to support your claims. Dates, destinations, and the purpose of the business trip all have to be accounted for as well as the collection of all relevant receipts and logs. Good documentation not only supports your case but helps you to be ready for any future HMRC audit.
Navigating Business Entertainment
What Qualifies as Entertainment?
The entertainment expenses are a gray area. In general, the costs that have to be incurred for hosting clients or business partners (e.g. a meal, theatre tickets or sports event) are rarely deductible for tax purposes, since such costs almost always have a personal aspect. But if you can prove that these expenses have a direct and measurable business purpose, then a part of them is still able to be claimed.
Exceptions and Careful Consideration
However, there are scenarios where these entertainment expenses would qualify. Take, for instance, if the event has something to do with a business meeting, or with a product demonstration, some costs could possibly be accepted. You should never include such expenses in your claim unless you consult HMRC guidelines or professional advisor.
Employee Reimbursements and Remote Working
Reimbursing Work-Related Expenses
Many companies do reimburse their employees for everything from mobile phone bills to travel, right down to home office costs. The practice is particularly applicable today as a lot of employees work from a remote location. HMRC guidelines should be followed to treat these reimbursements for tax purposes correctly.
Temporary Provisions for Home Offices
Current global events have temporarily resulted in expense policy changes. Now employees who work from home can be reimbursed for their essential office equipment free from the usual tax and National Insurance complications. The provision works to help businesses adapt to remote work and stipulates that the equipment has to be purchased for work use only. It is important to keep track of these temporary measures as they may vary according to the changing circumstances.
VAT Considerations on Business Expenses
Reclaiming VAT
Reclaiming VAT is possible for many business purchases, but only for that part of the expense that is directly associated with business use. If the expense is partly private, you can only reclaim VAT on that which is business relevant. These cases call for very clear and precise invoicing that shows the separation between personal and business use.
Documentation and Compliance
To reclaim VAT, it is important to maintain accurate invoices and receipts. Without it, it is difficult to justify the expenses claimed and thus a lower VAT reclaim is likely during an HMRC review.
Capital Expenditure and Allowances
Differentiating Between Expense Types
In contrast to day to day operational costs, capital expenditures like the purchase of machinery, vehicles, or computer equipment are dealt with differently. When you submit the costs of these assets for capital allowances, they are not completely deducted in the year you bought the assets but instead spread over several years.
Annual Investment Allowance (AIA)
Annual Investment Allowance (AIA) is a generous tax relief that enables companies to deduct in the year of purchase up to the specified limit, the full cost of qualifying capital assets. Although this limit has been revised throughout the years, the AIA continues to be a great planning tool for businesses to speed up tax relief for big investments.
Writing Down Allowances
If the capital expenditures exceed the AIA limit then companies need to use Writing Down Allowances (WDA). The expense can be deducted gradually over a number of years through this method, which makes sure that long term investments are properly taken care of in the company’s tax planning.
Accountants for Limited Company
Expert Guidance
For many companies, interacting with experienced professionals can help unlock the greatest tax relief. Partnering with expert accountants for limited company is essential in the heart of expense management. These specialists can help you overcome difficulties with tax regulations and find all allowable expenses, and keep records in the highest possible standard. This is especially important when tackling mixed expenses or new, temporary provisions that need to be interpreted carefully according to recent HMRC rules.
Final Thoughts
Managing claimable expenses is not an easy task especially if you are a limited company. To reduce the tax burden, fund your business growth and keep your expenses out of questionable territory, gain knowledge on what is an allowable expense, record diligently, and leverage the advice of professional advisors. For example, if you are managing day to day travel expenses, trying to understand the details of corporate entertaining, or putting together massive capital investments there is no room for anything less.
Tax regulations landscape is changing all the time therefore one needs to be informed and proactive. Optimizing your expense claims is possible and with the help of the right approach and expert guidance your company will be able to fortify its financial health.