What are the biggest obstacles facing UK businesses? According to a recent survey of business owners, the top three were: worries about the economy, competition and, finally, taxation.
While we can’t do much to help kickstart British business or thin out your industry, helping you reduce your tax bill is very much within our remit.
We specialise in helping freelancers, contractors and SMEs work out what they should be paying in tax. A significant part of this is examining your expenses. What have you claimed for in the past? What are you claiming for now? What could you be claiming for in the future?
Below are six key expenses that we look for in new businesses that you can claim for too.
#1 Home Office
Small businesses often feel pressured into renting office space. Yes, sometimes it’s down to growth and expansion but there’s a whole load of directors who feel motivated to move due to their company image.
However, when you really dig down into it, a lot of small businesses don’t actually need a dedicated business space. Their home will do.
And, to make it working from home even more attractive, it can actually save you money. (On top of the rent you’re already saving!)
Small business owners who regularly use their home as a workspace can now claim a flat tax deduction of £4 per week. What’s better is that business owners are not required to provide bills, receipts or other documentation.
If your home office expenditure is greater than the £4 deduction — which it probably is — you can calculate an exact figure, based on how much of your home used for business, how many hours of the day your home is used for business and any extra utilities used.
Note: for directors of limited companies, any expenses that would remain the same if the director was not working from home cannot be claimed as tax deduction.
Maintaining open lines of communications with customers, suppliers and colleagues is an essential — and expensive — part of business. Buying home and office landlines, mobile phones and fast internet connections can easily add up to one sizeable bill.
Thankfully, all of these outgoings are at least partly tax deductible. Here’s what you can claim.
If a small business owner uses a home landline to make business calls, the cost of those calls alone is tax deductible. Any other costs are not tax deductible.
Unlike a home landline, an office phone is typically fully tax deductible. Note: all bills must be issued to the business and not the business owner.
Mobile phones are more tricky. The cost of phones registered to the company are fully tax deductible but personal use must be kept to a “reasonable” minimum.
Like mobile phones, broadband contracts registered to the company are fully tax deductible but personal use must be kept to a minimum.
Based on average bills for one mobile phone (£36 per month), one office landline (£13.50 per month) and one broadband internet connection (£16 per month), you can save a lot of cash without much work.
The enormous cost of equipment is a major hurdle for small businesses, with computers, office furniture and specialist equipment common purchases.
However, as long as the equipment is purchased in your company’s name and you retain receipts and invoices to prove ownership, this expenditure can be deducted before calculating your Corporation Tax bill.
Businesses are currently entitled to claim up to £200,000 of plant and machinery deductions each year, under the Annual Investment Allowance.
Unless you’re buying huge specialised pieces of machinery, it’s unlikely you’ll get anywhere near the £200,000 limit. That said, the cost of computers and office furniture can easily add up
Travel and tax have a long and complicated relationship, with some parts considered tax deductible and others not.
Starting with the bad news, your daily commute is not considered tax deductible. Getting to your workplace is your responsibility and you aren’t getting any money back for it.
Onto the good news, any travel outside your normal commute is tax deductible. Business trips, client meetings, conferences, workshops, interviews, site visits and CPD are all considered tax deductible.
If you’re travel requires you to stay overnight, you can claim Incidental Overnight Expenses (IOEs), which stands at £5 per night. The IOE covers laundry, internet charges and so on and rises to £10 if you’re staying overseas.
It’s difficult to put a figure on how much money you can save from travel deductions as it all depends on how much you travel for work. If you spend four hours per day travelling around the country to visit clients, you could save hundreds of pounds every year with a smart travel expenses policy.
Sometimes business owners will use a privately owned vehicle for business travel. For example, using your own car to visit a new client or on-going site. While you can’t claim anything for the car itself, you can claim a deduction based on mileage.
The current business mileage rates are as follows:
45p per mile*
24p per mile
20p per mile
* The rate for cars and vans drops to 25p per mile for any mileage over 100,000 miles.
According to the RAC Foundation, the average yearly mileage for four-wheeled business vehicles was approximately 800 miles, which represents an average yearly saving of approximately £300 per year.
Finally, magazines, journals and books are tax deductible — as long as they are related to a business’s trading activity. For example, a psychologist could subscribe to the BPS and a marketing agency to B2B Marketing.
Considering the weighty subscription fees on good publications, this can save you a huge amount every year.
Extra Tip: Professional Advice
Keeping tabs on your expenses is tough work, especially when you are balancing a full-time role as well.
At Tax IQ, we specialise in helping freelancers, contractors and small businesses get their finances in order, taking care of everything from personal tax returns and payroll to business accounts and expenses. To find out how we can help save you money through expenses, get in touch with our team today.