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Two of the most common misconceptions about business expenses are that you get money back from… somewhere (nope), and that you can claim for anything (no again). Whilst the idea of ‘claiming expenses’ makes it sound like someone is giving the money back to you, what you’re really doing is claiming tax relief.

In short, your expenses are offset against the money your business earns, and you’ll pay tax on the amount that’s left (the profits) once you deduct these allowable expenses.

But how are you supposed to know which business expenses are claimable and which ones aren’t? It can certainly be a minefield and let’s face it, no-one wants to pay more tax than they have to. To help you avoid falling foul of HMRC we’ve put together this general guide which signposts more specific information along the way (expenses are complicated!).

How business expenses work

Are capital expenses the same as regular expenses?

What are simplified expenses?

Can I claim back all my business expenses against my tax bill?

What business expenses are allowable?

How do I work out my allowable expenses?

Can I claim the Trading Allowance and expenses?

What business expenses can’t I claim?

How do I claim my allowable business expenses?

Business expenses are important because you pay tax on the profits that are left over once you deduct these expenses from the income figures.

For example, if you charge someone £100 for a service, but you spend £10 in order to deliver that service, then you only made £90 profit. In that case, you should only pay tax on £90 and not the full £100.

If you’re a basic tax rate taxpayer, you would save 20% tax on £10, which would be a saving of £2. Applying this principle to all your expenses can add up to some hefty savings which really reduce your tax bill.

Capital expenses usually relate to larger items that your business will use for a reasonable period of time. This might include items like office desks or computers – essentially, things you need to buy for your business that you would expect to last you at least a year.

The tax relief you can claim on capital expenditure is called capital allowances.

 
They’re a bit different to your normal business expenses (sometimes referred to as ‘revenue’ expenses) which tend to be things you buy for your business that generally last less than a year before they’re “used up”. Day-to-day items like stock, paper, water cooler bottles, and printer ink are good examples.

If you’re using cash basis of accounting then some expenses may be treated the same as capital expenditure. We’re happy to help with this one if you’re not sure!

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