Do you know what business expenses are allowed and which are not? Every business owner, contractor and freelancer needs to be aware of expenses and how they should be recorded, tracked and managed at all times. This post will outline everything that you need to know about business expenses and how they can be managed and help to lower your tax bill.
What are Expenses?
First, it is worthwhile outlining what business expenses are. Essentially, these are costs incurred by you or staff members specifically needed for the running of the business. It is a necessary expense and one that is incurred solely as part of the daily operation. There are two different types of expenses that need to be recorded:
Tax-deductible: A tax-deductible expense is one that is taken from the profits, which will help to reduce your tax bill.
Non-tax deductible: Expenses that are not deducted from profits and have no bearing on the tax bill.
Allowable Expenses
HMRC allows many different types of expenses that businesses in different sectors might incur. The most common types of allowable expenses include wages, rent, insurance, utilities, office equipment and repairs and maintenance. If you have a car that is used for business purposes, then you can claim the maintenance costs as a business expense. From booking an MOT online to a quick car service, these can be legally claimed.
Excluded Expenses
Not all expenses can be claimed on your tax return and it is vital that you know what these are. A few of the most common expenses that are excluded from tax relief include business entertainment, donations, the repayment of loans and the depreciation of assets. Although you cannot claim these expenses, it is still important to track them to maintain accurate books.
Keeping Records
It is vital that your business maintains accurate and up to date financial records. This means that all of your expenses must be tracked, which means that you and your team must always collect receipts for all business expenses. You can then update your accounts, but you should also keep hold of receipts and records as evidence. It can be much easier to maintain accurate records with the use of accounting software or by outsourcing to an accountant.
Hopefully, this post will have been useful and help you to gain a stronger understanding of business expenses. It is important to track all of your expenses so that you can maintain accurate financial records, lower your tax bill and operate above board. Having a clear system in place for recording and managing expenses is key and will make it much easier to keep on top of your accounts, tax obligations and overall financial health.
