Maximising allowable expenses for limited companies

Running a limited company in the UK comes with various financial responsibilities, one of the most important being the management of allowable expenses. Properly maximising allowable expenses can significantly reduce your company’s taxable profit, leading to substantial tax savings. This article provides a comprehensive guide on what qualifies as allowable expenses, how to claim them effectively, and tips for optimising your tax position. Additionally, we will highlight how Double Point can assist you in managing your business expenses efficiently and ensuring compliance with HM Revenue and Customs (HMRC) regulations.

Understanding Allowable Expenses

Allowable expenses are costs that are “wholly and exclusively” incurred for the purpose of running your business. These expenses can be deducted from your company’s income to determine its taxable profit, thereby reducing the amount of corporation tax you need to pay.

Common Allowable Expenses for Limited Companies

Office Costs

1. Rent and Utilities: If you rent office space, the cost of rent, electricity, gas, water, and business rates are allowable expenses.
2. Office Supplies: Items such as stationery, printer cartridges, and postage costs are deductible.
3. Furniture and Equipment: The purchase of office furniture and equipment, such as desks, chairs, computers, and printers, can also be claimed. These may need to be claimed as capital allowances if they are considered long-term assets.

Staff Costs

1. Salaries and Wages: The salaries and wages paid to employees, including bonuses and commissions, are allowable expenses.
2. Employer National Insurance Contributions (NICs): Employer contributions to NICs can be claimed as a business expense.
3. Pensions: Employer contributions to employee pension schemes are deductible.
4. Staff Training: Costs for training courses and professional development for employees are allowable.

Travel and Subsistence

1. Business Travel: Travel costs incurred for business purposes, including train fares, flights, accommodation, and meals, can be claimed.
2. Mileage: If employees use their personal vehicles for business travel, you can claim mileage expenses at HMRC approved rates (45p per mile for the first 10,000 miles, 25p thereafter).
3. Subsistence: Meals and accommodation costs incurred during business trips are allowable.

Marketing and Advertising

1. Advertising: Costs for advertising in newspapers, magazines, online platforms, and other media are deductible.
2. Website Costs: The cost of creating and maintaining a company website, including domain registration and hosting fees, can be claimed.
3. Promotional Materials: Expenses for business cards, brochures, and other promotional materials are allowable.

Professional Fees

1. Accountancy Fees: Fees paid to accountants for preparing accounts, tax returns, and providing general business advice are deductible.
2. Legal Fees: Legal costs related to the day-to-day running of your business, such as drafting contracts or dealing with legal disputes, are allowable.
3. Consultancy Fees: Fees for professional consultancy services that directly relate to your business operations are deductible.

Insurance

1. Business Insurance: Premiums for insurance policies such as public liability insurance, professional indemnity insurance, and employer’s liability insurance can be claimed.
2. Health Insurance: If you provide private health insurance for your employees, these premiums are allowable expenses.

Capital Allowances

Capital allowances allow you to claim tax relief on certain types of business assets, such as machinery, equipment, and vehicles. These are not deducted as normal business expenses but are claimed through capital allowances. The Annual Investment Allowance (AIA) provides 100% tax relief on qualifying capital expenditure up to a certain limit.

Bad Debts

If you have issued an invoice that you cannot collect, you can claim it as a bad debt expense. The debt must be written off in your accounts, and you must have taken reasonable steps to recover it.

Other Allowable Expenses

1. Bank Charges: Bank charges and interest on business loans and overdrafts are deductible.
2. Subscriptions: Costs for professional memberships and subscriptions relevant to your business can be claimed.
3. Software: Expenses for business-related software and apps, including subscriptions to cloud services, are allowable.

Tips for Maximising Allowable Expenses

Keep Detailed Records

Accurate record-keeping is crucial for maximising your allowable expenses. Ensure you keep receipts, invoices, and bank statements for all business-related expenditures. Using accounting software can help streamline this process and ensure you have all the necessary documentation for HMRC.

Understand What Qualifies

Familiarise yourself with HMRC’s guidelines on what constitutes allowable expenses. This will help you avoid common pitfalls and ensure you claim everything you are entitled to.

Plan Your Purchases

Strategically plan your business purchases to make the most of allowable expenses. For example, timing the purchase of new equipment or machinery at the end of the financial year can help reduce your taxable profit for that year.

Review Regularly

Regularly review your expenses to ensure you are claiming everything you are entitled to. This can also help identify any recurring costs that might be reduced or eliminated to improve your business’s profitability.

Seek Professional Advice

Engaging with a professional accounting service like Double Point can help you navigate the complexities of allowable expenses and ensure you are maximising your tax reliefs effectively.

How Double Point Can Help

Double Point offers a range of services designed to help limited companies manage their finances and maximise allowable expenses. Our expertise ensures you stay compliant with HMRC regulations while optimising your tax position.

Our Services Include:

• Tax Preparation and Filing: We ensure your tax returns are completed accurately and submitted on time, helping you avoid penalties and maximise tax efficiency.
• Bookkeeping: We manage your day-to-day financial records, ensuring you have a clear picture of your business finances.
• Expense Management: We help you identify and maximise allowable expenses to reduce your taxable profit.
• VAT Services: If you need to register for VAT, we handle the registration process and manage your VAT returns.
• Financial Planning and Advice: We provide strategic advice to help you plan for the future, manage your cash flow, and make informed business decisions.
• Compliance and Audits: We ensure your business complies with all relevant regulations and provide support during any HMRC audits or inquiries.

Conclusion

Maximising allowable expenses is essential for reducing your taxable profit and ensuring your limited company operates efficiently and profitably. By understanding what qualifies as an allowable expense and implementing effective record-keeping and financial management practices, you can significantly enhance your business’s financial health.

Double Point is here to support you in navigating the complexities of managing your business expenses and optimising your tax position. Contact Double Point today to learn how we can help you maximise your allowable expenses and achieve your business goals.