Under the UK tax law, not all the business expenses are deductible for tax purposes. Generally, a business expense must be incurred necessarily and exclusively for your business.
Where expenditure incurred relates to both business and private use, the amount related to personal use is not tax deductible for your company and the private expense must be added back to your business accounting profit.
If a motor car is used for both business arid private purposes, then the capital allowances and the total car running expenses will be spilt in proportion to the business and private mileage. You will need to keep records of your total mileage and the number of miles travelled on business to calculate the correct amount of motor car expenses for the business.
The expenses listed below are not tax deductible or can only be partially claimed as business expense. These non business expenses must be added back to your taxable business profit when calculating your tax bill.
Entertaining expenses usually are not tax deductible but there are exceptions you may want to seek professional accountant advice on other entertaining expenses such as staff entertaining and gifts to employees.
Bribes, kickbacks. fines, penalties and lobbying costs.
These expenses are self explanatory of why they are not tax deductible.
If you have just started a new business, you may be wise to consult a professional tax accountant on this question, especially if your start-up costs are rather large.
Working from home
If you are working from home, you will need to keep sufficient records to back up the proportion of heating and lighting costs that relate to your business and your private use.
Life insurance premiums
A business may buy life insurance coverage on key officers and executives, but if your business is the beneficiary, the premiums are not deductible. The proceeds from a life insurance policy are not taxable income to your business if the insured person dies, because the cost of the premiums was not deductible. In short, premiums are not deductible, and proceeds upon death are excluded from tax.
Travel and convention attendance expenses
Some businesses pay for rather lavish conventions for their managers and spend rather freely for special meetings at attractive locations that their customers attend for free. The UK tax office takes a dim view of such extravagant expenditures and may not allow a full deduction for these types of expenses. The HMRC holds that such conventions and meetings could have been just as effective for a much more reasonable cost. In short, a business may not get a full deduction for its travel and convention expenses if the UK tax officer audits these expenses.
Transactions with related parties
The HMRC takes a special interest in transactions where two parties are related in some way. For example, a business may rent space in a building owned by the same people who have money invested in the business; the rent may be artificially high or low in an attempt to shift income and expenses between the two tax companies or individuals. The transactions may not be at arm’s length basis. A business that deals with a related party must be ready to show that the price paid or received is consistent with what the price would be for an unrelated party.
Small businesses and companies are advised to seek professional tax accountants for help if you have incurred business expenses that you are not sure whether they can be claimed against your business profit fully or partially.
Accountants at concise Accountancy offer taxation services to both individuals and businesses. Our tax services include completing your tax returns or self assessments form and submit it to HMRC for you.
Concise Accountancy – Making taxation simple for business