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Tax deductible expenses

The HRBS.biz guide to tax deductible expenditureThere 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)

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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