What can be claimed as an expense for a Limited company?

What is a Limited Company?

A Limited Liability Company is an “incorporated” business structure that means that to bring the company into existence, it must first be formally registered with Companies House.

Once registered, the limited company is an entirely distinct “legal entity”, separate from the owners of the business.

A limited company is ‘limited by shares’ or ‘limited by guarantee.

Limited by shares

Limited by shares, companies are usually businesses that make a profit. This means the company:

  • is legally separate from the people who run it
  • has separate finances from your personal ones
  • has shares and shareholders
  • can keep any profits it makes after paying tax

Limited by guarantee

Limited by guarantee companies are usually ‘not for profit’. This means the company:

  • is legally separate from the people who run it
  • has separate finances from your personal ones
  • has guarantors and a ‘guaranteed amount.’
  • invests profits it makes back into the company

Choosing company name

You must choose a name for your business if you’re setting up a private limited company.

There are different rules for sole traders and business partnerships.

Your name cannot be the same as another registered company’s name. If your name is too similar to another company’s name or trademark, you may change it if someone makes a complaint.

Your name must usually end in ‘Limited’ or ‘Ltd’. You can include the Welsh equivalents ‘Cyfyngedig’ and ‘Cyf’ instead if you registered the company in Wales.

‘Same as’ names

‘Same as’ names include those where the only difference to an existing name is:

  • certain punctuation
  • certain special characters, for example, the ‘plus’ sign
  • a word or character that’s similar in appearance or meaning to another from the existing name
  • a word or character used commonly in UK company names

Advantages of limited company:

  • Limited liability to owners.
  • Low set-up costs.
  • Easy to incorporate.
  • Simple succession and business transfer.
  • Tax advantage

Disadvantages of a limited company:

  • Complex administration
  • Obtaining finance
  • Public record of your finances and filing history

Limited Company expenses

Here are some of the core business expenses you can set off against Corporation Tax (unless otherwise stated, plus maybe others not listed here specific to your business):

  • Wages / Salary for third parties on payroll inc;
    • Director salaries
    • Pension contributions (via an approved scheme).
    • Employers’ national insurance contributions (NICs).
  • Subcontractor costsanyone you bring in to do some work for you.
  • Food and Drink – See below for further clarification on this
  • Accommodation costs when away from the usual place of business (although you must not exceed 24 months at a ‘temporary workplace’). If you need to pay for accommodation, you can claim the expenses as tax-deductible if they are exclusively for your work. If you use the capacity for a mix of business and personal use, you must calculate the proportion of business use and claim for this proportion only. HMRC advise that if a period of continuous work lasts more than 24 months at a single workplace (i.e. client site), then that work is not temporary, and you cannot claim expenses, subsistence and tax relief. A period of continuous work means 40% or more of your time. So, if you spend more than 40% of your time at a client’s site, you can only claim expenses, subsistence and tax relief for 24 months. After 24 months, or when you become aware you will be spending more than 24 months at a client’s site, your workplace is permanent, and you cannot claim expenses.
  • Incidental overnight expenses of £5/night (£10/ night if overseas) can be claimed as a flat rate if you work away from home.
  • Travel / Transport
  • If using your vehicle- mileage allowance of 45p/ mile for the first 10,000 miles, and 25p/ mile after that 20p/ mile for bicycles.
  • Alternatively, you can claim for ‘actual’- A percentage according to usage for the business of:
  • Vehicle purchase cost
  • Insurance
  • Road tax
  • Fuel
  • Maintenance and servicing
  • Parking for business
  • Any other travel costs which are incurred while running your business
  • Training course fees if the skills are relevant to the business and are for ‘upskilling’. Qualifications for a new skill (e.g. initial electrician training) are allowable only as a capital cost.
  • Tools and Equipment and safety equipment (inc first aid kits),
  • PPE (personal protective equipment) – work boots, Hi-Vis workwear, gloves, waterproofs, overalls, etc
  • Computer/Software and similar equipment for use in the business, e.g. laptop, pc, printer, scanner, chargers etc.
  • PPS (post, printing and stationery) Stationery, postage, and printing costs.
  • Insurance – Business insurance, such as professional indemnity insurance.
  • Memberships & Subscriptions Any memberships to professional or trade bodies and subscriptions to professional or trade publications. Also business magazines and books.
  • Professional fees, such as accountant or solicitor.
  • Telephone and broadband packages (if the contract is in the company name).
  • Mobile and Smartphones (if the contract is in the company name). The cost of business calls can be reclaimed on a residential phone bill.
  • Home office costs (a flat £4/week without receipts is allowed by HMRC or work out a proportion of the household bills).
  • Advertising and marketing – Costs of advertising and marketing your business inc standard costs, e.g. Business cards and online advertising, e.g. google ads
  • Business gifts up to £50 per individual are allowable before more complex rules apply. HMRC states, ‘ A gift of alcoholic drink, tobacco, food, or an exchangeable voucher is not tax-deductible unless it is a trade sample. Gifts which carry advertising – such as stickers, mugs, diaries, tax cards, keyrings, are generally allowable as advertising and promotion costs
  • Bank charges – authorised bank charges are allowable
  • Entertaining clients, customers, or third parties You should include this as a business expense, but this is not allowed. If you hire a venue for an event, then tax relief may be claimed on the cost of the venue
  • Staff –

        o  Entertaining staff – this is allowable for tax purposes as staff welfare. This only applies to official employees, not freelancers/subcontractors. There is also a Christmas party exemption for employees of £150 per person per year.

         o An eye test for employees who use computer equipment.

         o An annual private health check for employees.

  • Capital allowances (depreciation of assets)
  • Hire purchase agreements (in the business name).
  • Company car expenses (although there is a benefit in kind charge for private use).

Food/ Subsistence

HMRC rules say, “everyone must eat to live, and such costs are normal costs of living incurred by all and not incurred for trading” this means that because you derive some personal benefit (you eat to stay alive). You’re not eating to do your job; the cost of food and drink is not wholly and exclusively for your business and cant be included as an allowable business cost.

See common expenses claimed for incorrectly include:

  • Working out of your local coffee shop. You buy coffees and food/snacks. Your food and drink cost is not allowable for tax but should be included in the accounts as it is a business expense. Just be aware you will NOT get tax relief on the cost.
  • You spend the day working at a client’s site close to home but pop out to buy coffee and/or lunch. Your food and drink cost is not allowable for tax but should be included in the accounts as it is a business expense. Just be aware you will NOT get tax relief on the cost.
  • You attend a local networking event, and the entrance fee doesn’t include refreshments, so you pay for your coffee when you get there. The networking fee is allowable, but the cost of your drink is NOT.
  • You work from home and order food because you’re got a deadline to meet and no time to cook. The cost is not allowable.

Some allowable food/subsistence costs:

Be warned about claiming subsistence for locations too close to your base of work as these may not be allowed.

  • If you are staying away from your usual base overnight on business.
  • For example, you live and work in and around Winchester but must travel to Birmingham for a 2-day conference. You would be allowed to claim “reasonable” costs for the evening meal and breakfast (please note alcohol is not subsistence unless it is purchased with a meal, and even then, it must be reasonable, e.g. one drink or half a bottle of wine).
  • If you make a journey that is outside your normal pattern of business activity
  • For example, you run a coaching and mentoring business from your home in Bolton. If you had to embark on a 3-hour drive to attend a CPD course and stopped off at an M&S en-route to buy lunch – the cost of lunch would be an allowable deduction.
  • If you are running a business that is by nature itinerant
  • This would involve running a company where you did temporary work at various locations without visiting the same client regularly. Examples include a party entertainer or a jobbing gardener.

Unfortunately, HMRC doesn’t give precise guidance as to what constitutes “itinerant” or “reasonable” regarding costs. If your circumstances aren’t straightforward, talk to WIM Accountants about what you can and cannot claim. And don’t forget to keep all your receipts.

 

If you would like any further information on anything covered in this blog, please feel free to contact us

 

 

WIM Accountants are here to help businesses with their accounting and taxation needs.

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