Introduction to business expenses
The majority of expenses incurred by your company will be tax deductible. This means that they are deducted from your profits and therefore reduce your tax bill. A lower tax bill means more working capital and you have more cash available, increasing the value of your company and maximising profits available for investment or drawing as dividends.
The importance of business expenses
By recording your expenses and having a good expense management, it gives you a clear view of how your company is performing and ensures that you have a true view of your financial position throughout the year.
With Provestor, logging your expenses is quick and easy; you can capture your receipts through our mobile app or upload them on the desktop.
What is classed as a business expense?
The HMRC rules is clear on this; a business expense must be necessary and one that is wholly and exclusively incurred as part of the day to day running of your business.
So, if the expense is necessary and wholly incurred as part of the running of your business, it is a business expense. Personal items and expenses must not form part of your expense recording; examples include clothes (non-uniform), dry cleaning and supermarket shopping.
Two questions to ask yourself are:
“Did I purchase this item or service because I need it for my business?” If the answer is yes, then it is a business expense.
“Is the item or service used purely for business?” This helps you ascertain whether a proportion of the cost needs to be deducted for personal use. Examples of this are: mobile phones in your own name but used for business calls too, home-office space running costs, personal vehicles used for business.
If you are in any doubt, get in contact with us.
Can I claim for business start-up costs?
Yes, business set up costs can be claimed as business expenses. Any expenses that are paid for using personal funds should be documented and claimed for when the company starts trading. You do need to remember a few rules when claiming this type of expenses:
Does it meet the business expense criteria above?
For corporation tax purposes the expense must be no more than 7 years and for VAT purposes no more than 6 months before you started trading. In reality, it would be best to concentrate on the expenses incurred 6 months or less prior to the start of trading.
How do I record my business expenses in Provestor?
Entering your expenses is quick and easy in Provestor and we’d suggest that you set aside a few minutes a week to keep on top of them. There are two places to input them depending on how they were paid for:
Expenses screen - those paid for using personal money, e.g. from your cash or from a personal bank account
Bookkeeping screen - those paid from a company or portfolio bank account
When recording the expense: enter the details, select the correct accounting category and check that the VAT rate shown matches the rate on the receipt. The Provestor software does the rest.
What receipts should I keep and how?
You need to keep a receipt/proof of purchase for all expenses. This can be in the form of the paper originals or electronic copies. It is worth noting that if you are keeping electronic copies, you should ensure that they are complete, legible, secure and backed up in more than one place.
As with all receipts and HMRC required evidence, you need to make sure they are retained and available for inspection or you could receive an unexpected tax bill if you can’t provide the required proof of purchase. Within the Provestor software, you can easily capture and store your receipts against your transactions.