Nichola Ross Martin, of the considers when traders can claim a part or proportion of an expense.
In business you tend to incur costs for one reason – for the purpose of the business. Some expenses are incurred for more than one reason, and if you can identify part or a portion of them which relates wholly and exclusively to your business you can claim part of the expenses for tax purposes.
If you are self-employed, make a claim for the full cost of the expense in your accounts and then add-back the non-business proportion to disallow it in your tax calculations.
If you are trading through a company the position is slightly more complicated. An expense may be disallowed if it is incurred for the private purposes of any employee or director, although in practice, it would be taxed as earnings or as a benefit in kind, and the full cost to the employer of expense plus National Insurance would be deductible for tax in the employers’ accounts as employee remuneration.
Whichever way you trade, some expenses are incapable of apportionment and are automatically disallowed for tax, and most perplexingly, others, although incapable of apportionment, are specifically allowed by HM Revenue and Customs (HMRC) for tax.
How do you apportion expenses?
It should really be obvious, as if you can measure how much you use of something, you can surely apportion it. This is often how it does work in practice, and classic tax case law over the years has established that you cannot apportion some of the basic human necessities such as food, drink and clothing because you cannot separate the use of such things between business and the private requirements of being human.
More strictly though, you should look at each expense and ask why it was incurred - don’t forget that some part of it should be “wholly and exclusively” incurred for business. Ask yourself what was the primary motive behind the expense, and if there was more than one, how much weighting should there be for the personal aspect, and how much should be disallowed.
Many expenses are incurred primarily for business purposes and any private use or benefit is merely co-incidental. If so there is no add-back for private use, unless of course you can actually measure that part of it. This is not an exact science, it is a question of judgement.
How much can you claim?
You need to have incurred the cost to claim the expense, and you need to have some voucher or receipt to prove it. What part or proportion you claim will depend on the expense in question. These are some suggestions as to how you might claim or apportion some expenses:
“Unapportionable” expenses:
These expenses are all or nothing: either the cost is wholly and exclusively incurred for the purpose of the business or it is all private.