What expenses and deductions can be claimed
The rules about what can or cannot be claimed as expenses and deductions can be complex to understand. If you work from home or are self employed you will be particularly interested in what can be claimed as deductions or expenses. In such cases the dividing of personal from professional expenses can be a grey area which is easily be distorted. Simply having generic knowledge about what the rules and regulations are will not suffice. Precise knowledge is required because you will need to know what receipts or bills should be retained or which proportion can be claimed for taxation purposes.
There are 101 definitions about what does or does not constitute an allowable expense. The easiest way to work out whether an expense is an allowable expense is to ask yourself two simple questions.
1. Was the expense incurred solely in order to acquire income from the business?
2. If an item of hardware is going to be purchased will it be kept long term solely for business use?
One of the difficulties in knowing what or what cannot be claimed is further exasperated by not knowing whether items should be allocated as capital or revenue expenses. Items such as machinery, buildings or computers are unlikely to fit neatly into the category of revenue expense. These items may be better suited to being classed as capital expenditure.
Working From Home
Most self employed people tend to work from home where possible. As such it is difficult to separate exactly what is a personal expense or what is a business expense. A proportion of what is used within your home environment can be claimed as a business expense. That is use of the:
Essentially claims are allowable for the proportion of time that corresponds with the amount of time that the service or facility is used for employment purposes.
National Insurance Contributions
If you have employees then you will be responsible for deducting and paying National Insurance Contributions on their behalf. National Insurance Contributions are considered to be a deductable allowance as long as they relate to employees. At this point you are probably thinking what about my personal tax payments? Unfortunately taxation is not considered to be a deductable expense? If Only…..
Business Associated Debt
In conclusion it is worthwhile sitting down with your accountant and exploring the rule regarding business debt as this is a permissible expense. There are of course different rule for bad or questionable debt. Likewise interest payments on items such as overdrafts are acceptable as allowable expenses whereas interest on loans to business partners falls outside of allowable expenses.
As can be seen the world of allowable expenses is far from straight forward or easy to understand. If you are not sure what to do or how to do it……… we at Holden Associates are here to help.