When compiling your end of year expenses, or even when you are contemplating business expenditure ready to report at year-end to HMRC in the hope of reducing your tax bill, you will likely be familiar with the expenses you are allowed to deduct related to your business activities.  But are you familiar with the business expenses you are not allowed to claim for?  Rather than get into hot water with the tax man or try and keep up with the numerous tax rules related to expenses, we have listed below the expenses that you cannot claim for whether your a sole trader or limited company, some which may surprise you.  Read on to see what these business expenses are.

The “wholly and exclusively” rule

Business expenses that can be claimed for if you are a sole trader or limited company are subject to the ‘wholly and exclusively’ rule, which means that any expenditure incurred and claimed for must relate only to business activities only, not personal.

So what is considered by the taxman to be a not an allowable business expense? Let’s see some examples below.

Clothing

Clothing worn to work is not tax deductible because of the “wholly and exclusive” rule, which is fairly self explanatory.  Clothing worn to work is also worn for warmth and for common decency.  However, there are instances where you can claim for business use, such as for protective clothing, very different from ordinary clothing, and used specifically for a business purpose, most likely for a job working with hazard materials or in dangerous situations.  In this case, any warmth and decency benefits are incidental to its primary purpose of protection, the need for which has arisen solely because of the worker’s job.

Did you know? If you are an entertainer, you can claim clothes you wear during performances as part of your act, as long as they are not considered ordinary clothing, in other words you would wear while not working,

Travel and subsistence

Company employees and directors may claim travel and subsistence expenses for journeys for travel outwith the usual place of business.  That means that any travel costs associated with commuting to and from work, even if you have more than one place of work, is not allowable.  HMRC determines that your primary place of work is where a worker spends more than 40% of working time there.

However, the rules relating to travel and subsistence for sole traders and limited companies are a less clear cut.  As the tax law is not explicit, case law – or how cases have been dealt with in the past by the taxman – are taken as a guide.  What has been established is that workers who change their place of of work regularly – otherwise known as itinerant workers can may claim for business travel and subsistence.

As the rules are not defined, we strongly recommend you speak to a tax specialist, like Mirandus Accountants, to ensure you are keeping on the right side of the law.

Training

Any training you undertake in your current business are allowable but the cost of any new learning of a new trade, however, is not.

Entertainment

Client entertaining is an expense which unfortunately cannot be claimed for.  For example, if you meet with a prospect or existing client for lunch or coffee, none of the expenses can be claimed for.  Staff entertainment, however, can be claimed for, but only up to certain limits.

Working from home

Whether you are a limited company or a sole-trade/partnership there are some costs you can claim for but to varying degrees depending on your legal structure when working from home.  If you are self-employed, you are able to claim a proportion of your home running costs such as rent/mortgage interest, council tax and light and heat bills.  The amount you claim should be worked out as a fair approximation of the running cost of the space you worked in, e.g., by taking into account the number of rooms in your home and the amount of time you spent working.  You are entitled to claim less if you are a limited company: you can only claim the extra costs (e.g., light and heat, phone) that working from home has cost.

Mirandus Accountants can help

We are an accounting company in London and Edinburgh who are tax accountants for the self-employed and offer accountant services and tax advisory services for small business. You can contact us for a tailored solution to your unique business circumstances.

Whether you are an individual, freelancer, contractor or you run a small business, we can help to minimise your tax burden with our tax planning and tax advice services. That way, you can ensure you are only paying what you should be and nothing more.

We strongly recommend you speak with a tax and accounting specialist like Mirandus Accountants, who can provide expert advice for your business and personal tax planning needs.