Keeping HMRC happy when claiming expenses such as holidays and golf lessons
Nobody wants to pay more tax than they need to, but company directors and sole traders often do, missing out on some significant opportunities when it comes to claiming expenses, writes tax advisor and CEO at The Tax Guys, Jonathan Amponsah.
There are wholly and exclusively? for the purpose of your business expenses that HMRC allows you to claim against your income.
The first step is to identify which expenses you have incurred. For example, rent and rates for your business office, telephone, computer software, business travel, staff wages, marketing costs and insurance all qualify.
It is other expenses, often with a personal component, for example, food and drink which cause confusion. Let’s look at some examples of the expenses which you can claim but if you’re not careful, you won’t be able to claim at all.
Business trips and holidays
This is an area where there’s often confusion. To clarify, here are some scenarios.
(1) You can’t turn a holiday into a business trip
This is where claiming expenses against your income is not allowed. When you go on holiday, the purpose of the trip is personal. You may spot an opportunity for some business while you’re there, but you cannot change the purpose you set out with. This means you can’t claim any of the cost incurred while doing business on your vacation.
(2) You have leisure time on a business trip
Let’s say you’re on a business trip somewhere hot and decide to go swimming, without incurring additional cost. That doesnt mean you’ve ruined the chance of claiming the cost of the trip against your income.
As business was the original purpose of the trip, you can still claim the whole amount through the company. All you have to do is keep receipts for everything that you’re meant to be doing on the business trip and claim that against your income. The reason is that your beach time has arisen as an incidental benefit from the main business purpose.
(3) You extend a business trip
When planning your business trip, you decide to add a day of personal shopping. There’s a great myth that because you’ve mixed business with pleasure, you can’t claim any of the trip expenses because the trip has dual purpose.
But, if the primary purpose of the trip is business, the only amount that you can’t claim against is the cost of the additional day. Say the business trip costs 2, 000 and your extra day is 300, you can pay back 300 and the 2, 000 can be claimed against company income. Include this in board minutes, and keep proper records, so that the main purpose is well documented.
Generally, HMRC don’t allow claiming expenses for entertainment (like food and drink) but where you meet certain conditions, you can.
(1) Entertaining employees
You are allowed to claim 150 a year per head for entertainment. Even if it’s just yourself, as director of a limited company, you can still claim this expense against your income. Because you (the director) are classed as an employee.
(2) An exchange
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