It is important to claim Tax Deductible expenses where possible and allowable. What tax deductible expenses can I claim through my Limited Company?
Generally if a cost relates to the Business – It may be tax deductible.
Any items relating to personal use or mixed use may be blocked or only partially allowable. These include some vehicle costs, mobile phone or home expense costs.
It is important to note that some tax deductible expenses for Corporation Tax purposes may incur a Benefit in Kind (BiK) on what National Insurance may be incurred where there is a personal benefit or enjoyment of a cost. This includes, but is not limited to Health insurance, professional fees or subscriptions.
Business insurance expenses
You can claim the cost of your business insurance policies as limited company expenses, as long as they’re used strictly for business purposes. Business insurances including public liability insurance, employers liability, professional indemnity insurance and contents insurance are all allowable expenses.
Advertising, marketing and PR expenses
You work hard to shout about your services through your advertising, marketing and PR activity. And regardless if it’s a one-off cost or an ongoing fee, if the investment has been used solely for business purposes, then this can be claimed as one of your limited company expenses.
If you’re on a business trip and have to stay overnight away from your home, you can claim the accommodation costs as an expense. You can also claim the costs incurred by the food and drink as travel and subsistence costs.
The bank fees that are charged to your business accounts, including credit card and loan interest, can be claimed as business expenses.
Childcare costs aren’t directly linked to the management of your business and as such, can’t be claimed as a business expense.
Use of your home as an office when you’re a limited company
Working through a limited company means if you work from home you can claim a weekly amount. Since April 2020, the amount HMRC allows you to claim is £6 each week without keeping any detailed records – this equates to £312 per year. The other good news is that HMRC doesn’t believe this to be a benefit in kind, which means you won’t have any tax to pay on this through your Self Assessment.
As always, there are rules: you must be able to prove that you regularly spend time doing your job in this office space, so you can’t just use your home office for a small bit of administration while the majority of your work is done on-site or at client offices.
Equipment that is necessary and essential for your professional duties will receive tax relief. You may also claim reasonable relief towards the cost of equipping/furnishing an office, (for example chairs or bookcases).
Renting your office to your business
You might be able to rent your personal workspace in your home to your limited company and claim that as an expense. You’ll need to declare these earnings on your Self Assessment, so they’ll be subject to further taxes after you’ve deducted your expenses. HMRC requires you to:
- own the property
- make sure any amount over £312 per annum is classified as rental expenses
- create a rental agreement between yourself and your limited company
- make sure that the rental agreement states that the rent is specifically for use of the office at certain times of the day, and nowhere else within your house is used
- make sure the rent you set is reasonable.
HMRC rules are complex in this area and they expect any calculation to be ‘fair and reasonable’. You should speak to a Crunch accountant before preparing a rental agreement between you and your company.
Gifts, entertainment and trivial benefits
You don’t need to pay tax and National Insurance or let HMRC know about a gift or benefit for your employee (otherwise known as a trivial benefit) if the following rules apply:
- It’s not set out in the terms of their contract
- It’s not a reward for their performance or work
- It isn’t cash or a cash voucher
- It cost you £50 or less to provide
If you offer employees gifts or benefits that don’t match all of the criteria above, then you’ll need to pay tax on them.
Professional subscription expenses
Occupation-specific magazine subscriptions, journals and books can be claimed as a limited company expense. For example, if you’re the editor of a photography magazine and you have a subscription to a rival title, you should be able to claim the cost of this as a business expense as it’s a way for your business to keep up to speed on industry trends and your competition.
Work phone contracts and broadband payments can be claimed as a limited company expense. If your mobile phone contract is in your company’s name and used solely for business purposes, you can claim the entire bill as a business expense.
If it’s a personal contract, you’ll need to separate the business and personal use out and claim the business-related expenses only. You can also claim limited company expenses for the business calls you’ve made from your home phone line.
Annual staff party expenses
Whether it’s a Christmas shindig or a staff summer party, the costs of entertaining your employees can be claimed as a business expense as long as it’s an annual event open to all staff members and costs less than £150 per person.
From computers and software to scanners and printers, the equipment that’s necessary to help you carry out your role as a limited company director can be claimed as company expenses. Office furniture, such as chair and desks, can also be claimed for as long as it’s used mainly for business purposes.
Professional development expenses
Personal development and training courses can be claimed as limited company expenses, just make sure you check it’s eligible before hitting the books. For example, if you’re an accountant, any training you undergo to become a chartered accountant is an allowable expense.
Travel expenses can be claimed as limited company expenses if:
- You’re responsible for paying the travel costs
- The travel is necessary for work purposes and you need to be present at the destination in question for business purposes. (This doesn’t include the everyday commute between your home and permanent workplace.)
If you use your personal car or van to travel to a temporary place of work and you’ve paid for the fuel out of your own pocket, you can claim the following rates as limited company expenses:
- Car and vans – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter.
- Motorcyclists – 24p per mile
- Bicycle – 20p per mile
Claiming the above rates doesn’t just lower your total Corporation Tax bill, it also means you can reimburse yourself for the amount claim.
As well as the mileage rates listed above you can also claim the following as business expenses:
- Parking costs
- Road toll fees
- Congestion charges
- Hotel rooms (within reason)
- Food and drink on overnight trips
- Public transport, including train, bus, air and taxi fares
- Vehicle Insurance
- Vehicle repairs and servicing
Startup costs can be claimed as limited company expenses for up to seven years before a company starts trading. Common pre-formation business expenses include laptops and computers software, internet and domain name fees, travel costs, as well as professional services such as accounting and legal help.
As a director of a limited company, if you choose to pay yourself a salary as an employee of your business, this, and the corresponding National Insurance Contributions (NIC), can be claimed as allowable expenses. Bear in mind that once you reach the National Insurance threshold, you’ll have to start pay NICs.
Once you’ve established an agreement with a pension provider, you can pay into your pension pot and get 100% tax relief as a limited company expense. Be aware that there’s a £40,000 limit on how much money you can add in tax-free to a pension scheme via your business or personally.
Generally speaking, spending money on business entertainment isn’t an allowable expense against profits. However, if you have to spend your own money on business entertainment as part of your duties as a limited company director, you may be able to claim it as a business expense. However, these business entertainment costs would be disallowed in the company profits, giving you the same result as not claiming in the first place.
Once you’ve sold your business and have received the funds from the sale, you’re then faced with a big question: what happens next?
After guiding the helm of your company, it will be tough to let go. But if the circumstances are right, there’s no reason why exiting the business should be a sad occasion. You’ve built a stable business and personal legacy. You’ve employed a team of talented people and helped them drive their careers. And you’ve brought your products and/or services to a satisfied and loyal customer base.
So, how will you now focus your time and effort? Let’s look at your options…
Retire and live out the entrepreneur’s dream
After many years of hard work, worries and stress, the thought of a business-free lifestyle may well be appealing. But retirement isn’t for everyone. If you have thrived on the pressure, challenges and excitement of being the captain of your business ship, retiring may seem like a step away from the action.
On the flipside, the allure of a more relaxed lifestyle may be strong. With the proceeds from your sale, you should be in a position to make you, your family and those around you very comfortable. It may be that the entrepreneur’s dream of building a business, selling up and retiring to a hot climate is your idea of perfection.
Stay involved in the business
Even though you don’t own the business anymore, it doesn’t mean you have to step away completely from the company. You could remain involved in the business in some capacity, allowing you to ‘keep your hand in’ and support the future course of the business.
For example, you could become:
- A joint partner in the business – you could sell a part share in the business and work as a joint partner with your new investor. This allows you to free up some capital, while maintaining an element of control and influence.
- An external adviser or consultant – you could advise the new owner and their board as an outside adviser. After all, who knows this business better than you? Becoming a consultant could well be an astute move and keeps you in the loop with the future path of the business – while charging out a consultancy fee as an added benefit.
- A non-executive director (NED) – you could join the board as a NED and use your personal experience to help guide and support the new owner and their board. If that’s the route you choose, it’s a good idea to retain some shares in the business, so you have a vested interest in the company’s performance and your own share value.
- An informal adviser to your family – if you’re handing the business down to the next generation of your family, they will almost certainly want your advice. You’ve been through the ups and downs of setting up the business, so you’re in the best position to give your family the guidance and tips they need to run a smooth operation.
Set up a new business
With so much experience behind you, it could be that you’re itching to start the whole business cycle again. If you’ve got the ideas, the capital and the motivation to start another new business, this can be a new and rewarding challenge to get your teeth into.
First time around, you’ll have been a little green and less aware of the many pitfalls of founding a new business. You’re now better prepared and more knowledgeable about what’s required from a founder and business leader. We learn plenty from our mistakes, so you’re in a great position to return to the business cycle again with a new idea.
As with any new businesses venture:
- Make sure you have a detailed breakdown of your business idea
- Write an in-depth business plan that maps out your journey
- Ensure you have the funding to get this idea off the ground
- Be prepared for a period of hard work and lower income before the company takes off.
Do your bit for charity and your community
We all have interests and causes that are close to our heart, so supporting charities and community projects in these areas is a great way to use your money for long-term good.
Donating money to your chosen charity or social enterprise is also a triple whammy:
- You get to provide funding to causes that are close to your heart
- You can be philanthropic and help people who are in challenging situations
- You get the positive impact of tax breaks for donating to charity.
You also have the option of putting your own time into working with these charitable causes. You can use your expertise and experience to guide them, help with fundraising or provide hands-on support at events, community projects or lobbying the Government for greater support.
The end of the road, or a new chapter?
Once the business is sold and you close your office door for the last time, you take a step into the unknown. But with so many varied and valuable options to choose from, your life post-exit need never be boring or predictable.
The potential is there for an exciting new venture, or the pleasure of relaxing in the sunshine by the pool. It’s up to you to define the next chapter in your life and your business career.
If you’re thinking about exiting your business, please do get in touch. We’ll help you plan your exit strategy, add value pre-sale and choose the best options for your personal future.
Talk to us about your next step.
Ascentant Accountancy are based in Derby (01332 981920, email@example.com) and Ripley, Derbyshire (01773 424009, Ripley@ascentant.co.uk), call us to see how we can assist.