What expenses can limited companies claim?

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Tax-Deductible Expenses for Limited Companies

A wide range of expenses can potentially be claimed as tax-deductible for limited companies, depending on the nature of the business and its ongoing requirements. These expenses can help reduce the taxable profits of the company, resulting in lower tax liabilities. Here are some common tax-deductible expenses that limited companies can consider:

Office Costs

  • Phone and broadband bills related to business operations.
  • Expenses associated with office supplies, stationery, and equipment.

Travel Costs

  • Business-related travel expenses such as petrol, transport fares, and accommodation.
  • Vehicle-related expenses for business purposes (excluding cars).

Clothing Expenses

  • Costs for uniforms or protective outfits that are necessary for the business.

Salaries and Subcontractor Costs

  • Employee wages, bonuses, and benefits.
  • Payments made to subcontractors for services rendered.

Stock and Raw Materials

  • Cost of purchasing stock or raw materials for resale in the business.

Financial Costs

  • Bank charges, including interest and fees related to business accounts.
  • Insurance premiums for business-related coverage.

Business Premises Expenses

  • Heating and lighting costs for the business premises.
  • Rent payments for business premises and business rates.

Advertising and Marketing Costs

  • Expenses incurred for advertising campaigns and marketing initiatives.

It is important to note that the eligibility of expenses for tax deduction may vary based on local tax regulations and guidelines. It is advisable to consult with a qualified accountant or tax professional to ensure compliance and maximize tax benefits.

How to Handle Employee Expenses

Certain employee expenses incurred during the course of their work can be claimed as business expenses. To reimburse these expenses, each employee should provide receipts, and the reimbursement can be processed through payroll. It is essential to keep track of these expenses and ensure that the employees retain the necessary receipts for documentation purposes. This enables the company to claim tax deductions on eligible expenses.

Business Assets and Capital Allowances

When it comes to buying assets for the business, such as vehicles, plant and machinery, it is important to understand how they are treated differently from general business expenses. These assets, known as “capital assets,” are typically items that are used and retained in the business for an extended period.

Capital allowances can be claimed against the cost of buying these assets. For example, the Annual Investment Allowance (AIA) allows businesses to deduct up to £1 million per year from their taxable profits for new assets. Additionally, there may be a 100% first-year allowance that enables the recovery of tax on an asset in the year of purchase.

It is advisable to consult with an accountant or tax professional to understand the specific rules and regulations regarding capital allowances and the eligibility criteria for claiming tax deductions on asset purchases.

Non-Tax-Deductible Expenses

While many expenses can be claimed as tax-deductible, there are certain expenses that are not eligible for deduction. It is important to be aware of these non-tax-deductible expenses to avoid any incorrect claims. Here are some common examples:

  1. Income Paid as Dividends: Dividend payouts are not tax-deductible, unlike salaries paid to employees.
  2. Client Entertainment: Costs related to wining and dining clients are not considered allowable expenses. However, entertaining employees can be claimed.
  3. Gifts to Clients: Gifts worth over £50 or those related to food, drink, tobacco, or promotional materials are not tax-deductible.
  4. Legal Fees: In most cases, only legal fees incurred for obtaining loans, patents, or registering trademarks are tax-deductible.
  5. Fines: Fines or penalties incurred during business activities cannot be claimed as tax deductions.
  6. Non-Gift-Aided Donations: Only donations made via Gift Aid qualify as tax-deductible expenses.
  7. Asset Depreciation or Improvements: The decrease in value of capital assets over time or expenses incurred for improving assets, such as renovations, are not tax-deductible. However, necessary repairs can be claimed as expenses.

Claiming Tax-Deductible Expenses

To claim tax deductions on eligible expenses, it is important to maintain accurate records of all purchases and expenses related to the business. These records serve as evidence when submitting the annual self-assessment tax return. While the records themselves do not need to be submitted, it is advisable to keep them ready as HMRC (Her Majesty’s Revenue and Customs) may request to see them for verification.

For efficient bookkeeping and expense management, many businesses find it beneficial to engage the services of an accountant who can handle the financial aspects and ensure compliance with tax regulations.

It’s worth noting that the allowable expenses for self-employed individuals, such as freelancers or sole traders, may differ from those applicable to limited companies. Therefore, it is important for self-employed individuals to understand their specific expense allowances.

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Buying Through a Limited Company: Key Steps

Buying properties through a limited company has become a popular strategy among landlords seeking to optimize returns and adapt to changing regulations. Here are the key stages involved in purchasing buy-to-let properties through a limited company:

Incorporation

  • Register the limited company with the relevant government authority to establish it as a separate legal entity from its owners or shareholders.

Business Bank Account

  • Open a dedicated business bank account in the name of the limited company to handle financial transactions related to the business.

Funding

  • Determine the funding required to make purchases, which can involve injecting capital, obtaining loans, or issuing shares.

Company Director(s)

  • Appoint at least one director responsible for managing the company’s affairs, including decision-making and purchase-related activities.

Identifying the Purchase

  • Determine the goods, services, or assets the company needs to buy, considering the specific requirements of the business.

Supplier Selection

  • Research and select suppliers based on factors such as price, quality, reliability, and customer service. Obtain quotes or proposals from different suppliers for evaluation.

Purchase Order

  • Create a purchase order (PO) that includes details such as supplier information, item description, quantity, price, delivery terms, and payment terms. The PO serves as an official record of the purchase agreement.

Payment

  • Once the goods or services are delivered as per the agreed terms, the limited company makes the payment to the supplier through various payment methods.

Accounting and Record-Keeping

  • Maintain accurate records of all purchases and expenses made by the limited company, including receipts, invoices, and other relevant documentation for accounting and tax purposes. Consider using purpose-designed accounting software systems to streamline record-keeping.

Tax Considerations

  • Seek guidance from an accountant or tax professional to understand the tax implications associated with purchases made through the limited company. Consider factors such as VAT or other sales taxes.

Asset Management

  • Effectively manage the acquired assets, including maintenance, depreciation tracking, and inventory management, to ensure accurate financial reporting and operational efficiency.

It is important to note that the specific steps and requirements may vary depending on the jurisdiction and legal framework governing limited companies in your country. Consulting with a legal professional or accountant who specializes in your region can provide tailored guidance based on your unique circumstances.

Embracing the Future

Buying buy-to-let properties through a limited company has emerged as a viable business strategy for landlords. This approach allows landlords to benefit from the advantages offered by a limited company structure and adapt to evolving property taxation regulations. By leveraging these benefits and navigating the market with confidence, landlords have the potential to unlock new opportunities for long-term success.

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Scott Baber
Scott Baber
Senior Managing editor

Manages incoming enquiries and advertising. Based in London and very sporty. Worked news and sports desks in local paper after graduating.

Email Scott@MarkMeets.com

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