As a director of a limited company, you will likely be well versed in the basics of business allowable expenses; that is, you can only claim expenses which are “wholly and exclusively” related to your limited company activities.
But are you really making the most of the tax reliefs available to you?
As a start off, here are the top ten expenses you should be claiming as a director of a limited company already and as you will see, as with most tax reliefs, there are rules to abide by to enjoy the relief fully, so please do not hesitate to get in touch if you would like a customised view of your claimable expenses.
When it comes to business trips, you can include business travel by train, bus, plane or taxi, hotel rooms and meals during the trip. You’ll get full tax relief for these expenses against company profit.
So what about paying for your partner on your business card who sometimes comes along with you on business trips to enjoy the hotel spa? As this expense is not wholly and exclusively related to business activities, this is viewed as a “benefit in kind” and is therefore you cannot claim for your partner – so far, so clear.
Now I’ll let you in on a secret; what if you have contracts that will run for a couple of years? Did you know that you can actually pay for future business trips and claim the tax deduction in the current year? You do need to be careful as the line between contracting regularly and working as an employee for a company needs to be considered. If you’ve worked for more than 24 months for a company, the travel and accommodation expenses will be judged by HMRC as a regular commute, and will no longer be allowable expenses but if worked out carefully, you could be saving on tax now for future work related travel expenses for that large contract you have secured.
If your limited company owns a vehicle you can claim for business-related car or van costs. So you can claim corporation tax relief for fuel, repairs, vehicle insurance, servicing and breakdown cover.
However, any corporation tax relief you claim may be outstripped by other taxation as a result of the vehicles being considered a “benefit in kind” to you personally as a director of the limited company. The limited company will be due National Insurance Contributions (NICs) at 13.8% and NICs will also need to be paid personally as the vehicle will need to be declared as a benefit on the limited company’s annual P11D form.
Furthermore, the tax on company cars can be as high as 37% for a car with high emissions of CO2. If a car cost £50,000 and you are a 40% taxpayer, you could pay £50,000 x 37% x 40% = £7,400 in tax. Not so good.
So you can see how having a company car can end up costing you as a director of a limited company more in personal tax than the corporation tax you can save.
Because of this, we often advise our clients to use their own car and claim fuel for business purposes. HMRC’s approved mileage rate is currently 45p per mile up to 10,000 miles (25p thereafter), which usually works out higher than the actual fuel costs. The reasoning for this higher rate is to factor in repairs and maintenance, so these need to be paid personally as they occur. It is worth noting you cannot claim fuel expenses for your daily commute from home to business expenses.
Tip: Buying a van instead of a car can be tax effective as, generally, you CAN claim 100% of the costs, less an allowance for personal use.
3. Phones and internet
A phone is one of the most common business expenses. If your mobile phone contract is in your company name and used predominantly for business then the entire bill could be claimed as a business expense. This is also true for tablets with internet data plans or any mobile wifi device you use whilst outwith your work premise.
You can your claim business calls from your personal mobile phone but this can be tricky as you will need to show apportioned costs between business and personal calls clearly, which could be hard to keep track off as well as time consuming.
If you work from home and you are set-up to work online, it may make sense to install a second internet connection via a business contract which allows for some tax relief and you should also get an enhanced service via a business line versus a personal one, with bigger band width.
The benefits of paying into your pension cannot be underestimated. Not only are you saving for your retirement, you can do so tax efficiently, putting aside funds for a delayed salary. You may have to wait a while to get this second salary but if you do have surplus funds, saving for your pension can be a very tax efficient means of reducing company profits and therefore your corporation tax liability.
As a director of a limited company, a company can pay up to £40,000 per year into a private pension pot for the director, subject to certain restrictions.
Let’s assume you’re 50 years old. You’ve started your own company reaping the benefits of a long career’s worth of knowledge. You’ve been bringing in more and more and you’re running out of ways to reduce the taxable profits. You’re taking a tax-efficient salary, but with personal income of £60,000 you are now in the higher-rate tax threshold. By paying some excess company profits into a pension, you will reduce the company’s taxable profit, while also deferring tax on the income and avoiding the dreaded higher-rate. This could be quite useful if you are planning to retire in the next 10-15 years though, even if you’re a young professional, it’s worth considering making some contribution.
5. Working from home
This is another fantastic tax relief you can take advantage of if you work from home.
If you work from home then you may be able to claim a proportion of your household costs and utility bills as expenses. This amount is calculated by looking at the number of rooms in your property, rooms that are used for business purposes and of course, the percentage of time that those rooms are actually used for work.
HMRC have made the claiming process simple by approving a rate of £4 per week for working from home expenses, which equates to £208 per year – not a huge amount. However, if you have a dedicated work space at home or you work from home a lot or most of the time, The cost could be claimed at the HMRC approved rate of £4 per week. However, that’s only £208 per year. If you use a large portion of your home to work or you work from home a lot, it is worth logging your home expenses carefully, which you can claim back, above the £4 per week approved level.
6. Staff costs
Staff training is another great tax relief available to you as a director of your company and your staff. There is one key point here; training is only allowable if you are improving upon existing skills for company employees, including you as a director. Therefore, if you wished to learn a new skill in order to offer a new service via your company, then unfortunately you will have to absorb the cost yourself.
7. Professional Services & subscriptions
Freelancers have the benefit of winning work and starting immediately without having to worry about limited company formation or administration. However, the time may come where you take on larger contracts and you may need to call on a legal professional to ensure you are signing up to the right contract for you and speak to a tax professional to check you are paying the right level of tax now that your profit margins are increasing. In both of these cases of professional help, they are tax deductible expenses.
Professional subscriptions and memberships are also tax-deductible. For example, an engineering company may choose to become IET members or a law firm can pay for subscriptions to The Law Society. As long as the subscription relates to your industry, it’s an allowable expense.
8. Plant, Machinery & Equipment
The costs of plant, machinery and equipment are in accountants language known as tangible non-current assets, which basically means any physical expense that the limited company uses over an extended period of time. Computer equipment used to be the go-to example here but with the reduction in cost and lifespan of laptops and tablets now, it is often better to claim them as regular expenses. A better example would be if you ran a printing company and bought a printing machine.
Obviously making large purchases of plant, machinery or equipment will mean a large expense in the business so it is best to avoid doing such purchases near the accounting year-end, when your corporation tax bill is also due!
9. It’s not too early to mention Christmas, is it?
I don’t think you will mind discussing and planning Christmas parties six months early if you knew you can claim tax relief! You are allowed to entertain your staff members plus their partners – limited to one each ! – annually, and this is logged as an allowable company expense.
The expense claim can include meals, drinks and possibly accommodation for a small team of employees. The only proviso is that the cost cannot exceed £150 per head. If it does then the whole expense is disallowed.
So why not treat your staff? It can help morale and reduce your tax liability, win!
10. Advertising, Marketing and PR
And last but not least, this final expense does cover a wide range of business expenses, including for example taking out an advert on a website, local paper or on TV. It also covers marketing costs and hiring a consultant or a graphic designer to help with your re-brand advertising costs.
Did you know you can claim on branded promotional items? From mugs, caps, and t-shirts, to pens; even updated business cards.
You can also claim the cost of running email newsletters, pay-per-click advertising, and SEO services, as well as the cost of creating or updating your own website. There’s also the cost of advertising events, putting on a networking event or running a promotional campaign.
So as you can see, the remit is wide for this category of expenses. So if up to this point your business has thrived on referrals alone, you could consider taking advantage of this tax relief and getting a website built, or arrange for monthly newsletters to your clients on your latest products or services.
We can help
We are an accounting company in London and Edinburgh who are tax accountants for the self-employed and offer accountant services for small business. You can contact us for a tailored solution to your unique business circumstances.