You know which business costs are tax deductible and which aren’t - but do your clients know?
The tax-deductible purchases that small businesses and start-ups will benefit from
As a busy accountant you’ll see tax returns, receipts and expenses day in, day out. Sure they’ll be familiar to you - but are they familiar to your clients?
Times are tough and businesses are looking to claw back every penny they can. Plus, the new tax year makes it the perfect time to flag up tax deductible purchases with your clients, especially the start-ups.
Below, are seven commonly overlooked tax-deductible purchases.
Tax-deductible purchase #1: Meals
In general, it’s not possible to claim for meals, or any purchases relating to food and drink. After all, there’s no such thing as a free lunch.
Having said that, any food or drink-related expenses that fall outside of this definition, but are still exclusively for the purposes of trade, will be classed as an allowable expense. So, for instance, a staff member buying lunch at an all-day business event is claimable.
This applies to meals only though, not entertainment. For example, show tickets purchased for a client are not considered an allowable business expense and are therefore not tax deductible.
Tax-deductible purchase #2: Unpaid invoices
Not many people know about this one, which is a huge pity as it can be extremely valuable.
If a business owner is following traditional accounting practices, HMRC will allow them to claim for any unpaid invoice that they aren’t expecting to receive payment for but have accounted for in their financial planning. This is usually referred to as a “bad debt” or an “uncollectible accounts expense”. The only proviso with a bad debt is that the invoice isn’t then paid by the customer later on.
Businesses are not permitted to claim for unsettled debts that are:
- Not included in their turnover
- Not properly calculated
- In relation to the disposal of fixed assets, such as machinery, buildings or land
For clients that are using cash basis accounting, it’s worth mentioning that bad debts cannot be claimed on their Self-Assessment form. This is because cash basis accounting can only be used for money actually received, and as they haven’t received the money from their debtors, bad debts can’t be counted.
Tax-deductible purchase #3: Plant and machinery costs
This is another highly lucrative tax-deductible purchase that many small businesses and start-ups aren’t aware of.
Certain plant and machinery costs can be claimed under a company’s Annual Investment Allowance.
These include:
- Computers
- Printers and scanners
- Other manufacturing and office equipment such as desks and chairs
- Any plant and machinery required for the business to function
At present, up to £200,000 of plant and machinery deductions can be made each year. Obviously, what it will be worth will largely depend on the size and nature of the business.
Tax-deductible purchase #4: Legal and financial costs
Any costs relating to the hiring of accountants, architects, solicitors, surveyors or any other professional person is also tax deductible, as long as it’s to do with the business.
Payment for professional indemnity insurance premiums is also claimable, as are several other banking and insurance costs including:
- Interest on bank and business loans
- Overdraft, banking and credit card fees
- Leasing payments
- Interest paid on hire purchases
- Alternative finance payments (like Islamic finance, for example)
If your client is using cash basis accounting, remind them that they can only claim interest and bank charges of up to £500, and that they are not permitted to claim any legal costs in relation to the purchase of machinery or property. However, if your client is using traditional accounting, these legal costs can be claimed under the rules of capital allowances instead.
No costs that have been incurred due to late fines or by breaking the law can be claimed.
Tax-deductible purchase #5: Subscriptions
Are any of your clients signed up with professional bodies or in receipt of trade publications related to their business?
Again, you know these are tax deductible - but are your clients aware of this?
Subscriptions to academic trade journals or work written by specific specialists in the field are also acceptable.
There are exceptions of course. Any payments your client’s business makes to a political party do not come under the umbrella of ‘subscriptions’ and are therefore not tax deductible. Personal subscription payments for things like gym use or personal interest publications also do not count.
And one more thing to note: If your clients’ business makes regular donations to charity as a subscription then this isn’t tax deductible either. They’re considered charitable donations which HMRC treats separately under different guidance.
Tax-deductible purchase #6: Membership fees
This follows on from subscriptions, which we’ve already looked at.
Essentially, certain HMRC approved professional bodies are able to claim tax relief if membership is crucial in carrying out their job. However, some types of fees are not claimable. These include lifetime membership subscriptions and subscription fees that staff have paid themselves.
Tax-deductible purchase #7: Clothes
While it’s not possible to claim tax relief on the entire contents of your wardrobe, certain items of clothing are in fact tax deductible.
Eligible examples include:
- Uniforms that are worn by staff for work. For example, t-shirts, trousers or sweatshirts displaying the company’s logo would qualify
- Protective clothing required for health and safety purposes
- Costumes that are worn by entertainers or actors
Unlike travel expenses, claimants are able to deduct the whole cost of work-related clothing from their profits on their annual tax bill. However, everyday clothes that staff choose to wear to work are not claimable. Only uniforms or clothes deemed totally necessary to carry out the work will qualify as tax deductible.
Partner up with the R&D tax relief experts
This article was put together by Myriad Associates, a leading R&D tax relief and funding advisor specialising in R&D Tax Credits, R&D grants and more.
Find out how partnering with us will allow you to offer a more advanced, all-round service to your clients and help them achieve the R&D tax relief they’re owed.
Contact our team on 0207 118 6045 or fill in our contact form and we'll call you.
