Running a limited company is all about benefits, including the ability to claim back certain business expenses. However, power comes with responsibility. You have to know clearly what you can and can’t claim as a business expense to avoid HMRC troubles. Hence, the ultimate guide to business expenses claimed in a limited company has your back, helping you out all about business expenses and how to use them correctly.
What Are Allowable Business Expenses?
Allowable business expenses are “wholly exclusively, and necessarily” costs acquired for business purposes. If it’s for your company, you can probably claim it as a deduction. These expenses cut down your taxable profits reducing the amount of corporation tax you pay.
Examples of Allowable Expenses:
- Office rent or home office costs.
- Travel costs for business trips.
- Staff wages and salaries.
- Equipment and supplies you need to run things.
Remember, if an expense is half personal and half business, you might not get the full deduction.
Understanding Allowable Limited Company Expenses
Claiming expenses for your limited company helps reduce your tax liability. however, there are some strict rules about what counts as an allowable expense. The expense has to be just for the business. Taking a client out for lunch? Not always fully deductible. On the other hand business travel and accommodation costs usually are deductible.
Typical Allowable Expenses:
Employee Wages: Salaries for employees and yourself as the director.
Office Supplies: Equipment like stationery, furniture, & computers needed for work.
Professional Services: Accounting, legal fees, or consultancy services.
What is a Business Purpose Expense Claim?
A business purpose expense claim is when you claim money spent strictly on business activities. Directors or employees can get repaid if these expenses meet the allowable criteria.
For example:
Travel costs: If you attend a meeting outside your city for business purposes, the cost of travel (flight, train, etc.) It can be claimed.
Equipment: Necessary materials such as laptops or software for work can also be claimed.
Advantages of Claiming Limited Company Expenses
Claiming limited company expenses comes with a bunch of benefits:
Tax Efficiency: As your taxable profit goes down, so does your tax bill.
Repayment: If you incur out-of-pocket expenses, your company will repay them.
Improved Cash Flow: Lower taxes let you reinvest more income in your business.
How to Claim Expenses as a Limited Company
It’s pretty straightforward claiming business expenses as a limited company requires accurate record-keeping.
Keep Receipts: Store all receipts and proof of purchase. You will need them to justify your expense claims to HMRC.
Log Your Expenses: Track everything using software or a spreadsheet. Keep a detailed record of all business-related expenses.
Submit Claims: Spent money personally? Claim to get payment from your company.
Include in Accounts: List all allowable expenses when filing your accounts.
What Expenses Can a Director Claim?
As a director of the company, you can claim a wide range of expenses. Some examples include:
Mileage & Travel: If you use your car for business work, you can claim mileage.
Mobile Phone & Internet: If you are using them for business purposes, you can claim part of these bills.
Training: Courses or conferences related to business? Those costs are deductible!
LTD Company Expenses List
Office Costs
It includes rent, utilities, and even home office costs if working from home.
Travel Expenses
Business-related travel like mileage, public transport & accommodation counts here.
Equipment and Supplies
Purchased equipment like laptops or stationery? They count as allowable expenses.
Professional Fees
You can claim services like accounting and legal essentials for running the business.
Non-Allowable Ltd Company Expenses
Not everything qualifies to be claimed in business expense. HMRC has clear rules:
Personal Expenses: Anything personal isn’t allowed.
Client Entertainment: Meals or events with clients aren’t fully deductible but might boost relationships.
Impact of VAT on Business Expenses
If VAT is registered, you can reclaim VAT on most business things. But first, make sure it’s strictly business-related. No reclaiming VAT on personal things.
you’ll need to enter the VAT rate charged when entering the business expense. This is usually noted on the receipt, but if not, the main rates are below:
- Standard (20%): The VAT rate charged on most expenses.
- Exempt: Bank charges, postage, insurance, and mortgage interest.
- Zero: Train tickets, flights, books, newspapers, food (except hot prepared food to eat in or takeaway which is standard rated).
- Reduced (5%): Domestic fuel & power, energy saving materials.
Common Mistakes to Avoid When Claiming Expenses
- Mixing personal & business expenses.
- Not keeping those important receipts.
- Forgetting to track mileage when using personal vehicles for work purposes.
Tax Implications of Business Expenses
Claiming business expenses allows lower taxable profit which reduces corporation tax due. But mess up with non-allowable claims, you could face penalties from HMRC.
Record Keeping for Expense Claims
Good records are key. Therefore, keep every receipt (digital/physical) logged promptly after each expense incurred.
Handling Non-Allowable Expenses
If you’ve mistakenly claimed non-deductible ones adjust before submitting accounts else risk facing penalties.
In conclusion…
Claiming business expenses as limited companies slashes tax liability and ensures smoother finances overall. However, be mindful of allowable vs. non-allowable while keeping detailed records aligning well with HMRC guidelines maximizing positive claims without hassle.
