10 Business Expenses You Can Claim as a Small Business to Reduce Tax Liabilities
Managing finances effectively is critical for small businesses, and part of this process involves understanding which expenses can be claimed to reduce tax liabilities. Crucially, there are numerous allowable expenses that, when claimed properly, can significantly lessen a small business’s tax burden. Awareness of these deductions is key to maximising profitability and ensuring that a business only pays tax on their net income, after deduction of permissible expenses.
Knowing what constitutes a claimable business expense is not just about compliance, but also about strategic financial planning. The clarity on what day-to-day operational costs, as well as the less obvious expenses, can be deducted helps businesses to forecast their finances accurately and manage cash flow more efficiently. As such, it is vital for business owners and financial managers to stay informed about tax relief opportunities that align with current tax legislation.
Key Takeaways
- Business expenses can be claimed to effectively reduce taxable profits.
- Operational costs and specific additional expenses are key deductible items.
- Accurate financial forecasting is enhanced by understanding tax deductions.
Essential Business Expenses
Running a small business involves numerous expenses, and it’s crucial to understand which of these can be claimed to reduce tax liabilities. The following are some of the essential business expenses that they can typically claim.
Salaries and Wages
Salaries and wages paid out to employees are a deductible business expense. These include wages, commissions, and bonuses, which are all part of the day-to-day running costs, and can significantly lower their taxable profit.
Rent or Mortgage Interest
For those small businesses that operate from a rented space or own their commercial property, the rent or the interest element of the mortgage payments can be claimed. You must ensure it is solely the interest part of the mortgage, not the capital repayment.
Utilities
Utility costs such as heating, electricity, and water, incurred during business operations, are claimable expenses. These utility bills are a portion of the overheads and they can deduct a proportion that is strictly for business use.
Office Supplies
Purchasing office supplies – whether it be stationery, postage, or printing costs – forms an integral part of running a business. These expenses can add up, and claiming them offers a means to manage overheads effectively.
Additional Deductible Expenses
When managing a small business’s finances, it’s critical to identify every opportunity to reduce tax liabilities. Specific costs are eligible for deduction, effectively lowering the business’s taxable income. Here are six additional deductible expenses that savvy business owners should consider.
Travel and Accommodation
Travel costs related to business can be claimed, including the expenses for trains, taxis, and flights. Accommodation for business trips is also tax-deductible. However, these must be strictly business-related and not for personal leisure.
Marketing and Advertising
Investments in marketing and advertising are essential for growth and are recognised as allowable expenses. This includes online advertising, the cost of printing business cards, and promotional flyers. These costs are vital for business visibility and attracting new clients.
Professional Services
Fees for professional services like accountants, solicitors, or business consultants are tax deductible. Businesses can claim these expenses provided they are incurred in the performance of the business.
Education and Training
The cost of training courses for staff to improve their skills directly related to your business can be deducted. Also, educational workshops and literature that benefit the business are deductible. This is restircted to Limited companies only.
Insurance Premiums
Insurance policies specifically purchased for the business, such as public liability or professional indemnity insurance, are allowable expenses. Health insurance for employees may also be deductible, depending on the policy details.
Plant and Machinary
Vans and Trucks & Machinary are fully tax deductable and can often help reduce corporation tax or persoanl tax liabilities. The full cost of the vehicle can be 100% claimed against business profits in the first trading year.
Frequently Asked Questions
Understanding which business expenses qualify for tax relief can significantly impact a small business’s tax liabilities. It’s essential for entrepreneurs to know what constitutes an allowable expense and how to optimise such claims to maintain compliance and maximise savings.
What types of expenses are considered allowable for a sole trader to claim in the UK?
A sole trader in the UK can claim a variety of running costs as allowable expenses. These include office supplies, travel costs, and certain bills, provided they are directly related to the running of the business.
As a self-employed individual, what specific costs can I deduct to minimise my tax liabilities?
For self-employed individuals, deducting expenses like office rent, business travel, marketing, and business insurance premiums is permissible. These must be exclusively for the use of the business to be considered for tax relief.
For a limited company, which expenditures are eligible for tax relief?
Eligible expenditures for a limited company include employee salaries, business travel expenses, operating costs, and costs associated with the maintenance of business property. These expenditures can be deducted from profits to reduce the overall corporation tax liability.
How can I determine the amount of business expenses to claim without presenting receipts?
Without receipts, claiming for business expenses becomes challenging. However, HMRC may allow for simplified expenses for certain costs like vehicle mileage, working from home, and living at your business premises.
What are the criteria for an expense to be categorised as a legitimate business cost?
An expense qualifies as a legitimate business cost if it is incurred wholly, exclusively, and necessarily in the performance of the business. The cost must be directly related to generating business income to be deemed allowable.
What limitations exist on claiming tax relief for business-related expenses as an employee?
Employees can claim tax relief on costs not reimbursed by their employer, such as work-related travel, uniforms, and tools for the job. However, personal expenses, regular commuting costs, and non-essential costs cannot be claimed.
Get in touch and talk to us about business expenses.
No comment yet, add your voice below!