Money’s tight when you’re a startup. The last thing you want is to miss out on reclaiming expenses you incur as you start to build your business.
But while you’re busy assembling a team, working on developing your product or service, marketing your brand and doing all the other things that new business owners need to do worry about, it’s easy to forget about keeping an eye on the finances.
Looking for help online isn’t always easy either. There’s plenty of information spread around on gov.uk, but its guides run to more than 100 pages and finding and reading all that certainly can be … “taxing”.
So, what expenses can startup businesses claim? Here’s our roundup of the most common areas where you can (and can’t!) claim expenses for your startup.
If you’re in any doubt about what you can or can’t claim, speak to your accountant. Or get in touch with us and let’s talk about how we can support your startup business as it grows.
The golden rule for what you can claim as a business expense
Claim only for the expenses that you incur which are wholly, exclusively and necessary during the everyday running of your business.
Capturing all your costs is the key to not missing out. We often see startups not claiming for expenses that are perfectly legitimate. So, hold on to your receipts, because expense claims for the following are likely to be tax deductible.
It’s easy to assume that you can claim for expenses only after you start your business. In fact, limited companies can claim relevant expenses for up to 7 years before the business begins operations.
Here are some areas where business expenses may be tax deductible:
- computers & software
- internet & web domain fees
- travel costs
- professional services
Laptops and tablets can be a grey area for expenses, because their portability means they’re often used at work and at home. If you’re confident that you can justify the expenditure based on a real business need, you should be fine to claim these.
Professional services can include the costs associated with accounting and legal help, such as company formation and the drafting of contracts.
There may be some items that count as business expenses but that are not allowable as tax deductions. Not all business expenses are tax deductible.
Try to maintain an accurate record of pre-formation and running costs, including VAT receipts. Doing so helps you justify your actions should your business expenses claims be queried.
Business insurance expenses
You can claim the cost of your business insurance policies as limited company expenses, so long as they’re used strictly for business purposes.
Allowable expenses for business insurances include:
- public liability insurance
- employers’ liability insurance
- professional indemnity insurance
- contents insurance
- vehicle insurance (if you have company vehicles)
Advertising, marketing and PR expenses
Promoting your startup is an important part of building momentum for your new business. So, the following are claimable on your company expenses:
- advertising (online, print & other media)
- social media campaigns
These expenses can be for one-off promotions or ongoing costs, so long as the investment relates solely to business purposes.
Travel and accommodation expenses
Travelling and overnight stays put a strain on your time as a business owner, but many of the related expenses can be reclaimed:
- accommodation costs for business trips with overnight stays
- reasonable food, drink and subsistence costs
- business mileage costs
There is an HMRC-approved scheme for claiming mileage. Keeping a mileage log and using this scheme is a quick, easy way to reclaim travel costs. Keep in mind that you have to satisfy the following for your expenses to be valid:
- 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/van – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter.
- motorcycle – 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 claimed.
As well as the mileage rates listed above you can also claim the following as business expenses:
- parking costs (but parking fines are not allowable)
- 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 (company vehicles only)
- vehicle repairs and servicing (company vehicles only)
Note that travel doesn’t have to mean long distances: trips to banks, solicitors and other short but necessary business travel can all be claimed. It may not seem like much, but it all adds up over the course of a year.
Keeping your money safe and handling transactions are necessary parts of doing business. Therefore, bank fees charged to your business accounts can be claimed as valid business expenses. That also includes claims for credit card and loan interest.
Use of home as office
While most businesses run on their own or rented property, but it’s also possible to run a business from home.
If you do this, you’re able to claim a percentage of your household costs and utility bills as business expenses.
The easy approach is to claim a simple rate of £4 per week (£208 per year). Alternatively, you may wish to work out what rooms you use for your business needs and the amount of time they’re used for work purposes.
You’ll also be able to claim back other related costs related to working from home, so long as they’re incurred solely for the purposes of business:
- postage & printing
Gifts, entertainment and trivial benefits
Staff entertainment and staff gifts can be claimed as business expenses. However, there are limits to what can be allowed for tax purposes.
Cash gifts to staff, or gifts that are performance related (such as rewards), are taxable on the employee, whereas flowers for a staff member would be perfectly acceptable.
For staff events and parties, the costs of entertaining your employees can be claimed as a business expense if it’s an annual event open to all staff members and costing less than £150 per person.
Any client entertaining, even if it’s a genuine business expense, is not allowable for tax purposes.
Communication utilities, including phone and broadband access, can be claimed as a limited company expense.
If your mobile phone contract is in your company’s name and it relates solely to 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 and then claim for only the business-related expenses. You can also claim limited company expenses for the business calls you’ve made from your home phone line.
HMRC have looked closely at this issue in recent years. If your phone contract is used for both personal and business but you easily identify what the business costs are, you’re advised not to claim any of it.
Plant and equipment purchases can be claimed so long as they’re used mainly for business purposes. Examples include:
- company vehicles
These costs will likely be treated as capital expenditure and end up as assets on your Balance Sheet rather than your normal expenditure. You’ll get the tax deduction for them in your Corporation tax return, under HMRC’s Capital allowance rules.
Professional development expenses
Personal development and training courses can be claimed as limited company expenses. Any training has to be wholly and exclusively for the purposes of your trade. If in doubt, check eligibility before adding such expenses to your records.
You’re also allowed to claim expenses for magazine subscriptions, journals and books.
If your startup is a limited company and you’re a director, it’s normal for you to pay yourself a salary as an employee of your business. That salary and the corresponding National Insurance Contributions (NIC) can be claimed as allowable expenses.
Once you reach the National Insurance threshold, you’ll have to start paying NIC.
Though it goes beyond the scope of this article, we’d encourage you to think about how you’re paying yourself. For example, some business owners take a minimal salary and then use dividends to help with their personal allowance.
Our team are used to talking people through what’s best for their personal tax circumstances. Get in touch if you’d like to explore this further with us.
Thoughts of pensions might be a long way off when you’re just getting rolling with a startup business.
But if you’re the type to think ahead, keep in mind that your limited company can pay into your pension scheme.
As an employer contribution, this would be an allowable tax deduction from the company profits, therefore reducing the tax payable by the company.
There are limits on how much money the company can pay into your pension in any one tax year.
Common expenses that your startup business can’t claim for
Remember that you can claim only for the expenses that you incur which are wholly, exclusively and necessary during the everyday running of your business.
You can’t claim for expenses that have a dual purpose for business and personal use. For example, if you decide to extend a business trip abroad for leisure purposes, you can claim only for the business days.
As per the section about phone bills, you need to differentiate clearly between business and personal use in order to claim expenses on a personal mobile contract. That’s why it’s probably best to set up your contracts in your business name.
Here are some general examples of expenses that can’t be claimed for:
- home to work journey
- most client entertaining
- business trips that you extend for personal holiday
- anything for personal use
In practice, that hasn’t stopped some of our clients trying to claim for expenses that were never going to make it through.
Here are some real examples that again can’t be claimed for:
- trips abroad being claimed as annual AGM costs for their spouse’s company
- family meals out being claimed as shareholder meetings
- sports season tickets being claimed as “sponsorship”
- kids’ bikes being claimed through the cycle to work scheme
- petrol receipts being claimed through the business, when the company owns only a diesel vehicle
- multiple iPhones/iPads going through the business around December time, despite there being only one director/employee in the company
- games consoles described as computers in the client’s cashbooks
Remember to stick with what’s reasonable: only genuine business expenses count.
If you’re in doubt about what’s a reasonable expense, do check with your accountant. And if there’s a grey area, you might be safest not to claim.
Business expenses may be paid through your company’s bank account, or you can reclaim the costs of business expenses paid by you and later reimbursed via your company.
As you can see from the lists above, there’s a vast array of things that startup businesses can claim for as well as a few things that definitely can’t be claimed for! Most business owners can easily overlook one or more of these areas, so keep this article handy and make sure you’re always holding on to your receipts for your expenditures.
And again, if your expenditure is for something wholly, exclusively and necessary during the everyday running of your business, you can probably claim for it as a business expense.
If you’d like to find out more about how we can help you get your tax right and not miss any of the expenses your startup business can claim, contact us now.