Anyone who runs a business will be keen to make sure their Corporation Tax bill is as small as possible, which is where tax-deductible purchases come in. Basically, they are purchases you make on behalf of your business on which you can claim tax relief.
According to HMRC this covers anything which is used ‘wholly and exclusively’ for your business, but while that sounds pretty straightforward, like most things to do with HMRC it isn’t!
Most of you will be well aware that things like business travel and office expenses are tax-deductible, but there are a number of items which you may not realise you can claim for. We take a look at some of the more surprising ones.
1. Legal and bank charges
The good news is hiring an accountant is tax-deductible, so if you are thinking of hiring one to deal with all your tax returns, you know where we are!
You can also claim tax relief on legal costs, bank fees, overdrafts, and credit card charges, as well as interest on bank and business loans and leasing payments.
2. Life insurance
Did you know you can claim life insurance as a business expense? You just have to make sure the policy is taken out by the company.
Relevant Life Insurance covers just one employee, with the payout going to the insured’s loved ones. If the policy is written into a trust, then the beneficiaries won’t have to go through probate to access the funds or pay any inheritance tax, which we think is a bit of a win-win!
There is also Key Person Insurance which covers the lives of the most important members of staff, such as the CEO or top salesperson. In this case the payout will be paid to the business which can help the business financially while they try and deal with the fallout of the loss.
And if you have a number of employees, you might want to protect them with Death in Service Cover. This means if an employee dies while they are working for you, their next of kin will receive a multiple of their salary.
3. Clothing
Sadly, you can’t go out and buy a whole new wardrobe, but uniforms, protective clothing and any clothing branded with your company logo are all tax-deductible. Maybe it’s time for that nicely branded fleece!
4. Charitable donations
If you run a limited company, then any donations you make to a charity are classed as an allowable expense. Just make sure you donate to a registered charity and keep any documentation about donations you have made.
If you’re a sole trader or partnership, any donations you make won’t be a tax-deductible business expense. You can still give money from your business bank account, but it should be recorded as ‘personal drawings’ or as a ‘non-business’ transaction.
However, higher rate taxpayers can include Gift Aid on any donation. The charity can then claim back the basic rate of tax on the donation, while you can claim tax relief on the difference between the basic rate tax the charity has claimed and your higher rate. This has to be reported in your Self-Assessment Tax Return.
5. Working from home expenses
If you work from home, then you can claim back part of your household bills including gas, electricity, water, and council tax. You can also claim a portion of your rent payments or mortgage interest and any excess internet or mobile phone usage.
You can claim in one of two ways:
2. Claim the home office allowance which is a flat rate set by HMRC based on the number of hours you work from home per month.
Hours of business use per month | Flat rate that you can claim |
25 – 50 hours | £10 per month |
51 – 100 hours | £18 per month |
More than 101 hours | £26 per month |
2. Work out the proportion of your home used for work. For example, if your home office takes up 25% of your home, then you can claim 25% of the costs. As these are classed as ‘working from home expenses’ they will need to be included on your Self-Assessment tax return. And make sure you keep copies of all receipts for at least three years, just in case HMRC comes knocking!
6. Parties!
Yes, you read that right. You can actually claim for any parties your business throws. There are just a few rules you need to follow to ensure you qualify for tax relief. Any party should be open to all employees and should not exceed £150 per head. This cost includes everything including VAT, accommodation, and transport.
Most companies opt to hold just one party a year, such as at Christmas, but if you decide to hold multiple events, that’s fine as long as you don’t exceed £150 per head across all those events.
And the good news is parties also extend to employee’s partners, so if you are a sole limited company director, it might be worth putting a tax-free event in the diary for you and your partner!
7. Pool tables et al.
Talking of parties, did you know a company pool table (or football table or dart board!) can also be classed as an allowable expense? The key thing to remember is the pool table needs to be in your office and has to be mainly for employee use. If HMRC finds out it’s mostly used by your clients or other office guests, it will be classed as business entertainment, and you won’t be able to claim either VAT or Corporation Tax relief.
Unsure whether a purchase is tax-deductible?
As you can see there are a number of surprising business purchases that will help reduce your tax liabilities.
If you’re at all unsure what expenses you can or cannot claim through your business, just get in touch, and we’ll make sure you receive the most up-to-date and accurate advice.