Tax deductible expenses

There is a great deal of confusion as to what you can and what you can’t deduct from your profit for tax purposes.

This tip gives a brief list of the types of expenditure you can claim, some of which you may already be deducting, some may be new to you and applicable to your business.

In general, costs enabling you to run the business and are incurred for business purposes are tax deductible.

Equipment purchased to be used by the business receives a tax deduction in the way of capital allowances, the rules for which changed in April 2008. The rules for 2007/08 are discussed at the bottom of this article. The new rules will be discussed in a separate article.

The blue links within each section lead to external sites offering good deals and discounts which you may be interested in to cut costs.

Expenses deductible (a brief list)

• Costs of stock/materials sold
• Workwear, small tools etc (construction workers, kitchen fitters etc)
• Business telephone costs (including mobile phone)
• Motor expenses for business use (alternatively claim mileage from your business at HMRC approved rates [40p for first 10,000 miles] to minimse paperwork)
• Car hire or van rental if for specific business use (40p per mile rate is not claimable for these trips)
• Postage, franking machines, courier charges , printing and stationery eg business cards , leaflets , flyers, postcards, brochures etc
• Advertising eg yellow pages, local newspapers, Google Adwords etc
• Computer consumables used for the business eg blank CDs, DVDs, USB memory sticks and external hard drives used for backing up your records
• Memory cards , batteries and accessories for your business mobile phone or digital camera
• Office and printing supplies including inkjet cartridges and toner (recycled cartridges are also environmentally friendly)
• Bank charges (although try to use a fee free bank account if possible)
• Broadband used for business purposes
• Wages and subcontractor costs (not your drawings)
• Professional fees eg accountancy, book keeping
• Trade subscriptions
• Warranties for your PC or Apple Mac or iMac (eg Applecare)
• Subscriptions to magazines which are relevant to your business eg PC Pro, MacUser, and other IT magazines. There are often excellent special offers available online with cheap subscriptions and free gifts (use voucher code GMags£5off at Great Magazines until 6 October).
• Reference books for business use e.g a2z/maps for business travel, guides for tax saving, writing business plans, business development, presentation and negotiation skills etc,


 

• Rail fares , bus and coach travel, taxi fares, flights, hotel and subsistence for business trips
• Rent and rates of business premises eg serviced offices
• Website development (including domain names and hosting)
• Use of home allowance if you work from home or do your book keeping at home (a percentage of light & heat, home insurance etc depending upon the proportion of your home used for business)
• Software annual licence fee (eg Anti virus) , online backup, pc utilities
• Business and laptop insurance

Equipment

Your accounts may include a depreciation charge in respect of your computer equipment, monitors,  so that its cost is written off over its estimated useful life. However, under current tax legislation, the accounts charge is not tax deductible. Instead you can claim capital allowances, which is effectively depreciation allowable for tax purposes.

For 2009/10 several rates apply:

• Annual Investment Allowance (AIA) of up to £50,000
• First year allowance [40% pa] which applies in the year of purchase of any expenditure in excess of £50,000
• Writing down allowance (WDA) [currently 20% pa] which applies to the balance on the capital allowance “pool” brought forward from the previous year
• A special rate WDA of 10% which applies to certain types of plant or machinery, such as electrical systems (for example, lighting), and cars that have CO2 emissions of more than 160g/km
• Small Pools Allowance – an alternative to the 20% WDA and 10% special rate WDA, which can be claimed for the whole balance brought forward from the previous year in either the main or special rate pool where this is not more than £1,000.

For new businesses, existing equipment can be introduced into the business at a market value and capital allowances claimed.

Credit cards

As a general tip, if you are using a credit card to pay for business costs, have a separate one in your name for business use, so that your personal expenditure is kept out of the business.  Cashback or Reward cards are ideal, especially if you pay them off in full as the cashback/reward is not taxable.

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