What can I put down as being tax deductible for my micro business?
If you’re self-employed, you will of course have a range of running costs and expenses, which you can take away from your business income to assess the profit in your accounts.
To work out what’s permitted as tax deductible, a simple consideration can be helpful, according to KPMG’s Bivek Sharma. The ultimate standard is if the expense is wholly and exclusively for business, then it’s fine, he said.
You can’t deduct costs for non-business or personal purposes, for buying or improving fixed assets or capital items which last for several years or costs which are recoverable under an insurance policy.
VAT should be considered too, as it can affect the amount you include in your allowable expenses if you are VAT registered, use the net amount to reduce your turnover, though you can only do this if the VAT on that expense is recoverable. You should also show turnover net of VAT. Receipts and allowable expenses can be shown gross with the net payment to HMRC classified as an expense. On the other hand, if you’re not VAT registered, use the total amount spent on the expense.
Sharma said that while tax can be tricky to navigate here, the majority of what you assume counts as a business expense is likely to be one. ‘stationery for example is deductible, he said with phone, mobile, internet, email and fax running costs all allowable expenses alongside postage, printing and small office equipment costs.
On the flip side, non-business or private use proportion of expenses (new phone or fax or other equipment costs) would not be tax deductible.
When it comes to client entertaining that’s a no-go, so any hospitality at events or entertaining suppliers, customers or clients can’t be claimed as expenses.
it’s worth taking a little bit of time to go through tax rules. Most business owners won’t know them inside out, but it can really help your firm to look into it, Sharma advised.
If the prospect of going through everything yourself is too daunting, he suggested getting an accountant on board to help explain, so owners can understand why certain things have been deducted.
There are some areas you may not have considered subscriptions, for example, can be claimed for trade or professional journals and trade body or professional organisation membership if related to your firm. Claiming for payments to political parties or gym memberships won’t be allowed.
Staff expenses encompass employee salaries, bonuses, pensions, benefits, agency fees, subcontractors and employers’ National Insurance, but don’t expect to be able to claim for carers or nannies.
Bivek Sharma has been a partner with KPMG for over ten years, specialising in accounting, tax and software. He started the Small Business Accounting division over two years ago with a goal to transform accounting services for small businesses. The team works with a huge variety of industry sectors and companies including coffee shops, technology companies, manufacturers, pubs, restaurants and retailers.