Reclaiming Business Expenses
Broadly speaking, business expenses are those expenses that are incurred wholly as a result of your business. If you are employed, your employer will require you to retain receipts of the business expenses you have incurred on their behalf. They will then set off those expenses against tax and refund you the cost. This means that the gross (before tax) profits will be calculated by deducting the cost of the expenses from that figure.
How employee expenses are dealt with varies from business to business. If an employee incurs a lot of business expenses, for example, due to frequent overseas travel, the employer may give the employee a charge or credit card on which to charge all expenses. Other employees may have to pay expenses themselves, and get a refund from the employer at specified periods (for example, once a month.)
If you are unsure as to the position in relation to business expenses at your place of work you should consult your employee manual. It is also worth clarifying, for example, whether you would be responsible for paying for your own lunch while on a one-day business trip. If in any doubt and to avoid disputes later on, check with your employer. You don’t want to find yourself having personally to spend money on a lavish business lunch to impress a potential client!
If the rules relating to expenses are not clear, confusion about employee expenses can be the cause of considerable resentment between staff and their employers.
Self-Employed Business ExpensesIf you are self-employed, there are likely to be certain items that you buy for mixed use, i.e. that you intend to use for both business and pleasure. If this is the case you are only entitled to deduct the portion of the business usage if it can be identified as such. For example you might buy a mobile phone handset or a computer, and then make both work and personal calls and use your computer and the Internet for both work and pleasure.
You should always ask advice from your accountant as to the right way in which to claim the business portion of mixed expenses.
Working From HomeToday, a lot of people choose to work from home and this often raises questions about how to deal with expenses incurred at home, while running your business.
Generally, the portion of your house that is your home office is the area from which expenses can be claimed. Again, everyone’s circumstances are different so it is highly advisable to speak to your accountant about your particular situation. However, some accountants suggest calculating the total square footage of your house to find the percentage of space that you use for your home business. If your claim is likely to be small, other accountants may suggest that you claim a token fixed amount of money every week (£2).
It’s important to remember that if the whole of one of your rooms is used for business use, the Valuation Office of the local council may decide they want to charge you business rates. Therefore, it is a good idea to keep the home office as a mixed use space. For example, if you use a spare bedroom as an office, it’s important to make sure it still also remains a spare bedroom.
If the money involved is substantial you may be able to reclaim a percentage of the costs of running your home. If your home office accounts for 7% of your total floor space, you would be entitled to claim 7% of your mortgage interest (n.b. not the repayment part), as well as 7% of utility bills, 7% council tax etc. However, the rules are complicated and you should always check with your accountant: Your claim must be genuine, of course, and may only be worthwhile if it is a significant amount.