By Jonathan Amponsah, The Tax Guys
If you’re running a small business as a sole trader, a partnership or through a limited company you might well be missing out by failing to realise the extent of expenses that can be claimed against income.
Of course HMRC expects you to claim the expenses that are incurred “wholly and exclusively” for the purpose of your business. Rent and rates, insurance, salaries etc.
But, what are the opportunities for “other expenses” with a personal element specifically education, training and holidays?
The directors of a company may decide to contract with the tuition provider to pay the school fees as part of their remuneration. This is treated as a benefit in kind just as the company can provide company cars to employees (and directors are employees). This becomes a benefit in kind with some taxes paid but crucially no employees NI. See link below:
An employer can provide work related training to employees (including directors) tax free. If it’s not work related, then we go back to the benefits in kind tax code (as above)
Where a self-employed person decides to go for some training themselves, then if attendance at a course is intended to give business proprietors new expertise, knowledge or skills, which they lack, this will not be allowed against tax. Because it’s treated as capital expenditure.
On the other hand, where attendance is merely to update expertise which proprietors already possess, the expenditure is normally regarded as revenue expenditure and will be deductible if it satisfies the “wholly and exclusively for the purposes of the trade.
HMRC allows you to claim against vouchers you give staff to exchange for holidays, if the cost is reported as a staff benefit. As a director, your company can pay for your holiday, report this as a benefit – then pay Class 1 National Insurance on the cost. You, as an employee pay tax on it. Then, the company can claim the cost of this benefit against its income.
Let look at some common scenarios that apply to most of us:
- Turning holiday into a business trip: This is where you absolutely cannot claim expenses against your income. The purpose of the travel is personal which means you’ve waived your right to claim any expenses. The fact that you see an opportunity to do some business while you’re away does not change this.
- Adding personal time to a business trip: You have a business trip and decide to spend an extra day or two on sightseeing. There’s a great myth that because you’ve mixed business with pleasure, you can’t claim any of the trip expenses as the trip has a “dual purpose” But that’s not applicable if the primary purpose of the trip is business. The only amount that you can’t claim against is the extra cost of staying in, say, Paris a bit longer. It’s important to keep notes and also board minutes to document the trip’s primary purpose. If you decide to bring your spouse but they’re not a business partner or employee, then all you have to do is separate the cost; your spouse’s flights will be disallowed but yours will be allowed and so on. So, as long as the primary purpose of the trip is business, you can claim against any cost in relation to that. Other non-business related cost will be disallowed.
- Leisure during a business trip: If you’re on a business trip you may decide to go for a hike in a beauty spot, without incurring additional cost. Because the original purpose of the trip was for business, you can still claim the whole amount through the company. Your time hiking along the cliffs is fine. Why? Because it’s an incidental benefit of the main business purpose with no additional cost.
HMRC’s website has a helpful guide under their expenses and benefits section. Use this, particularly if you’re not getting help from tax adviser or an accountant. It’s a good place to check out other expense that can be legitimately claimed against your business.
ABOUT THE AUTHOR
Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who has advised many clients over the last decade on tax deductible expenses. Jonathan is the founder and CEO of The Tax Guys. He is also the co-founder of Easy Tax Returns (a tax return app to help tax payers avoid stress, penalties and find their peace).
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