According to HMRC, expenses that are incurred "wholly and exclusively" for the purpose of your business can be claimed against your income. But there are other expenses that can be claimed that may also have a personal element to them, such as holidays, entertainment and leisure
Understanding which expenses are allowable can help reduce your taxable profit and therefore the tax you have to pay. Some expenses are obvious - such as business premises, travel and staffing costs - but there are others that are less apparent.
Entertainment, food and drink expenses
Staff entertainment costs:
You are allowed to claim £150 a year per head for staff entertainment.
Contractual obligation:
If, for example, you're providing a training course and as part of the contract you provide tea, coffee and lunch, you're allowed to claim for these refreshments because you're under a contractual obligation to provide this.
Quid pro quo:
Let's say you're a freelance journalist and you want to speak to Mark who has a world of experience on a topic you're writing about. You offer to take Mark out to lunch in exchange for his insights. Because Mark is coming to the table with something of value but not benefitting from it apart from getting a free lunch, you're allowed to claim the expense.
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Expenses incurred on business trips and holidays
Extending a business trip:
As long as the primary purpose of the trip is business, then it is OK to add a few extra days of holiday - provided you don't claim for the holiday portion. Make sure you keep proper records, notes and also board minutes to document the main reason for the trip.
If you decide to bring your spouse but they're not a business partner or employee, then all you have to do is separate the cost; your spouse's flights will be disallowed but your flight will be allowed and so on.
Mixing pleasure with business:
Let's say you're on a business trip somewhere nice and decide to go to the beach, without incurring additional cost. That doesn't mean you've ruined the chance of claiming the cost of the trip against your income. 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 - your trip to the beach doesn't matter. Why? Because there is no additional cost and it's just an incidental benefit from the main business purpose.
Turning a holiday into a business trip:
This is the only time where you absolutely cannot claim expenses against your income. When you go on holiday and the purpose of the trip is personal but then you decide to do some business while over there, you've waived your right to claim any expenses. Because the purpose of the trip is personal, you can't claim any of the cost incurred while doing business.
Claiming expenses correctly
Look carefully at all your business costs because even the least likely cost might be claimed against, as long as it's done correctly. If you are in doubt, seek advice. And make sure you get the paperwork and evidence right. Otherwise, you might be overlooking some less obvious allowable expenses and paying more tax than you have to.
Written by Jonathan Amponsah, founder and ceo of The Tax Guys.
