Want to cut your limited company’s tax bill? Like most of us, you’ll probably be worried you are paying too much tax, while other companies are saving thousands!
In this episode of Whiteboard Thursday, Nicholas Campion walks you through 13 allowable expenses you are probably not claiming, such as bicycle mileage, mobile phones, client entertainment, and your Christmas Party.
Hi there, Nicholas Campion here from 1st Formations and welcome to another episode of Whiteboard Thursday, where we take a look at all aspects of running a limited company in the UK.
So if you want to keep up-to-date with our insights, advice, and inspiration – then hit that subscribe button. But for now, let’s get started!
Today I want to walk you through how you can lower your company’s tax bill with some lesser-known allowable expenses that your company is probably not claiming.
Now, before we dive into what you can claim, let’s explain what we mean by allowable expenses.
Allowable expenses are essential business costs that you need to make in order to keep your company up and running. Allowable expenses are all tax-deductible, which means that HMRC allows you to offset those expenses against your annual tax bill.
Translation: if you’ve spent money on an allowable expense, you don’t have to pay tax on that money. For example, let’s say your company made £50,000 last year but you spent £10,000 on allowable expenses. That means HMRC would only ask you to pay tax on £40,000.
But listen up close, guys, because there are still important rules you need to follow when claiming expenses.
Generally speaking, you don’t have to send in records and receipts with your tax returns each year. But you absolutely must keep records of all your expenses, and you’ve got to show those records to HMRC if they ever ask you for proof of expenses.
So now that we know what allowable expenses are, let’s talk about which expenses you should be claiming.
There are loads of expenses that HMRC allows you to claim as a limited company – and you probably already know about a few of them like office supplies, tools, and business car mileage.
But that’s just the tip of the iceberg. If you want to lower your tax bill even further, you should make sure you’re claiming these 13 lesser-known allowable expenses.
So let’s get to it.
1. You can claim the cost of setting up your limited company
This might not be the biggest overhead you’re going to experience when you start up a new business – but every little help.
HMRC allows you to claim legal and professional expenses which include work from a solicitor, accountant, or company formation agent. That means the total amount you spend legally incorporating your UK company through Companies House (the UK’s company registrar) is tax-deductible.
2. You should be claiming your annual company Christmas party
We all know that festival get-togethers are great for employee morale – but did you know that a lot of the cash you spend entertaining your staff can be claimed as an allowable expense on your company taxes?
You’re exempt from paying HMRC tax on any work party or social event as long as:
- It’s an annual event like a Christmas party or summer barbecue;
- You only spend £150 or less per person on the party;
- And the party must be open to all your employees
If your business has more than one location, whatever you spend on the Christmas party (or other celebration) at that location will still be tax-deductible as long as it’s open to all of your staff at that location.
You can even put on separate parties for different departments within your company and claim it as an expense. Just make sure everyone who works for you is invited to at least one of those parties!
3. You should be claiming bad debts like unpaid invoices
We’ve all experienced the disappointment and frustration of working hard to fill a client’s order, but then sitting and waiting for an invoice to be settled. And sometimes, those invoices might never get paid.
Fortunately, HMRC actually allows you to claim those unpaid invoices against your company’s income when filing your taxes.
If you’re using traditional accounting, you’re able to claim any amount of money included in your company’s turnover that you aren’t expecting to receive. This is called “bad debt”, and you’re allowed to claim every item of bad debt as long as you are totally sure that the invoices you’re claiming for won’t ever be recovered.
Now, this is important: HMRC does not allow you to claim bad debts if you’re using cash basis accounting.
That’s because cash basis accounting only records the money you’ve actually received. But as long as you’re using traditional accounting, it’s ok to claim for unpaid invoices.
4. You should be claiming for your company’s broadband
The internet is so important in our daily lives that a lot of company owners don’t even think of it as a business expense. But HMRC allows you to claim the cost of installation and running costs of broadband as long as it’s related to your business.
That means you can deduct the costs associated with setting up a broadband contract for your work premises, home office (as long as it’s in your limited company’s name) or even at the homes of your employees if your company is footing the bill.
Now it’s important to note that if you’re claiming broadband, it’s got to be primarily for business use. HMRC accepts there will be some occasional personal use, but you must keep records and be able to demonstrate the expenses associated with a given broadband contract are in some way required for maintaining business operations.
5. You can claim for mobile telephones
If you’ve bought yourself a mobile phone or taken out a mobile contract for work purposes, this is tax-deductible. Not only that, but HMRC also allows you to claim for any expenses you incur providing your employees with mobile phone services.
That means if your limited company provides an employee (including yourself) with one mobile phone and/or one SIM card to use for work purposes, it’s an allowable expense.
Likewise, if your company pays a monthly contract directly to a mobile service provider on behalf of yourself or an employee, the expenses associated with those contracts are all tax-deductible.
But remember: if your employees contribute anything towards their work-based mobile phone (for example through a salary sacrifice arrangement), that means it is not tax-deductible. Your company has got to pick up the cost in order to claim it as a business expense.
If your employees use their own personal mobiles and you reimburse them for it, your company will still need to deduct and pay Class 1 National Insurance and PAYE through payroll.
6. You should be claiming bicycle mileage
You may already be claiming for van mileage or car mileage – but what you may not have realised is that you can also be claiming bike mileage as a business expense.
If you or your employees use a bicycle for work purposes, every mile travelled is tax-deductible. And unlike cars or vans, the amount per mile you’re allowed to claim as an expense doesn’t change no matter how many miles are travelled.
You’re permitted to claim 20p per mile for work-related bicycle trips. This can be claimed as an allowable expense by your limited company when completing your Company Tax Return – or if you’re a sole trader, you can claim this amount on your Self Assessment Tax Return.
So if you ever cycle to a meeting, work function, or deliver something via bicycle, claiming this mileage can really add up fast and help you relieve your tax burden,
7. You can claim the cost of parking
OK: so here’s another one a lot of company owners never think to claim. You don’t have to pay any tax or National Insurance contributions on parking charges associated with parking at or near your workplace.
Any car parking charges you have to pay as part of a business journey are also tax-deductible. Now, for all intents and purposes, HMRC defines a business journey as a trip that’s either ‘made as part of work’ or travel ‘to a temporary workplace’.
So if you’ve got parking charges that fall under this category, you do not have to report them to HMRC. They’re allowable business expenses and can be claimed against your company’s revenues.
There is an exception to remember, though.
If you give your employees money to pay for parking charges, that counts as employee earnings. That means you’ll need to deduct and pay PAYE and National Insurance on that money using payroll.
8. You can claim the cost of books and magazines
Are you or your company subscribed to any professional trade publications that are totally work-related? If so, then you can claim the costs of those subscriptions as allowable business expenses.
The same rule applies to one-off purchases of books or other magazines, as long as you keep records and those magazines are trade publications, academic journals or something else you can prove applies to your job.
Subscriptions or annual memberships to professional organisations apply under the same category.
But remember: if you’re going to claim for a book or a magazine, it must be a professional publication that’s related to your industry. Glossy magazines are definitely not tax-deductible.
9. You should be claiming business gifts
Giving Christmas gifts to your employees or taking a client out for a special treat? This is generally going to be tax deductible – but there are some important rules to remember.
HMRC generally treats business gifts as allowable expenses in the same way it treats entertainment expenses. That means if you’d like to claim a gift as a business expense, the following rules must apply:
- The cost of that gift must be £50 or less;
- Provision of that gift shouldn’t be part of their contract;
- The gift can’t be cash or a cash voucher;
- And it shouldn’t specifically be a reward for their work or performance.
If the business gift in question doesn’t match all of the above criteria, you’ve got to pay tax on it.
10. You can claim donations your company makes to charity
Has your business given money or any other type of donation to charity? If so, you should definitely be claiming it as an allowable business expense on your tax return.
All donations made to registered charities or community amateur sports clubs are 100% tax-free. This is called tax relief, and how it works depends on how you donate funds to charity.
Charitable donations are normally made through:
- Gift Aid;
- Directly from company wages or pensions through a Payroll giving scheme;
- Giving away land, property, or company shares;
- Or through your will (if applicable).
All of the donations you make to a recognised charity are totally tax-deductible.
That means all you’ve got to do is tally up how much your limited company has donated during the given tax year, and then enter that number in the ‘Qualifying donations’ box of the ‘Deductions and Reliefs’ section of your tax return.
11: You can claim employee eye tests
Eye tests aren’t exactly the most costly medical examinations out there – but they are pretty important. And believe it or not, your company can usually claim eye tests as an allowable expense.
In many cases, health and safety legislation in the UK means that employees who use a computer monitor or another screen for work-related purposes should be entitled to receive regular eye examinations – and companies are subsequently allowed to claim the cost of those exams on Company Tax Returns.
It’s worth pointing out in some parts of the UK like Scotland, eye tests are already provided free of charge to everyone every two years.
So before you start trying to claim this as an expense, consult the relevant health and safety rules in your area to find out how often eye tests are required and if costs apply.
12. You should be claiming the cost of flights
This one’s a no-brainer: if you or any of your employees have made business trips that required air travel, the total cost of that travel is tax-deductible.
But you’ve got to keep records of the purchase and be able to prove that the flight costs were 100% work-related.
For example, let’s say you’re flying to Spain for a two-week holiday, and you happen to end up going to lunch with a work client. You aren’t allowed to claim your holiday flight as a business expense just because you had one work-related outing.
The same rule applies if you’re on a weekend business trip to Paris and you then decide to switch your flights and stay in town for a few more days in order to do a little sightseeing.
Your flights must be 100% business-related in order to apply as a business expense.
13. You can claim for any work-related training courses
OK: so another allowable expense you should be claiming is for business training for yourself or your employees.
If you want to send a member of your team to a skills workshop, CPD course, or any other educational course that directly applies to their job at your business, the course expenses are all tax-deductible.
That means you don’t have to report anything related to that training to HMRC or pay tax on it. But you must keep records of the expenditure and be able to prove the training was definitely work-related.
Just like some of the other expenses we’ve already talked about, there’s a caveat, here: your company can only claim for employee training if you’ve paid for it.
If you let a member of staff pay for a training course through a salary sacrifice scheme, you won’t be able to claim that cost as a business expense.
And, there you have it!
So we’ve covered 13 allowable business expenses that you can (and should) be claiming on your Company Tax Returns wherever possible. These are all definitely worth exploring, and you’ll honestly be surprised by how much these deductions can lower your company tax bill.
But remember: HMRC introduces new rules and exemptions around expenses every once in a while, and so you should always consult HMRC or an accountant before preparing to claim expenses.
There are loads of ways that you can legitimately reduce your company tax burden – but when in doubt, do yourself a favour and always consult a professional.
If you have any questions, please leave a comment, and don’t forget if you want to be the first to receive new videos just like this one, then subscribe to our channel.
We’ll see you next time, cheerio!