It’s no hidden truth that business expenses are essential for running a business.
This could be any payment made by purchasing business items, paying for your website, or paying for employees’ wages.
Can you claim tax relief on all your business expenses?
All business expenses can be deducted as an accounting expense in accounts however it’s not all accounting expenses that are tax-deductible.
The non-tax-deductible business expenses result in the business no longer being able to save 19p as tax relief from the revenue.
However, occasionally business owners make the mistake of claiming tax relief on expenses that are not allowable.
You can avoid making the same mistakes as them. The following are some of the expenses that you can claim as an accounting expense but has to be added back to the profit before tax due are computed.
1) Depreciation or amortization of fixed asset:
Depreciation of a fixed business asset is an accounting method where a business owner deducts the cost of an asset over its useful life.
Amortisation is used in spreading the cost of goodwill over the useful life.
This expense is not tax-deductible because the useful life is determined by the business owner and this could be manipulated for tax advantage.
Instead, the revenue allows a tax relief referred to as capital allowance to be used if it’s a qualifying asset.
2) Private expenditures:
Expenses that relate to the personal expenditure of the business owner, which is usually referred to as the private expenditure, are always added back to the profit. This applies even if it has been deducted as an accounting expense.
3) Salaries of Sole traders/partners:
When Sole traders/ Partners deduct salaries, they will be claiming double relief. First from the business and secondly in their self-assessment returns when submitted.
4) Fines and penalties:
When business owners receive fines and penalties, they have to be added back to the profit.
5) Business Gifts:
A business gift is only non-tax-deductible business expenses in the following cases
- Cost over £50
- Include food or tobacco
- If they do not bear clear advertisement for the business
6) Legal fees:
The legal fees that relate to purchasing or acquiring an asset have to be added back to the profit. The exception to this is if the asset is a trading asset.
7) Purchase of Capital expenditure:
Any capital expenditure must be added back to the profit. The HMRC has advised that any durable asset that would and could last more than 2 years should be classed as a capital asset.
Keeping a proper record and deducting expenses helps to reduce the tax due is important, however, the accounts must be adjusted properly to remove the risk of paying penalties in the future.
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