Allowable Expenses through your Limited Company 💶

[Music] you one of most common questions we always get asked is what expenses can I claim through my limited company all if your operating is a sole trader what expenses can offset against income in order to get a tax or tax deduction now this is a very pertinent question and obviously quite an important question for a lot of director shareholders running through limited companies or sole trainers of running their companies and the simple answer to it is well it really does depend now contrary to popular belief there is no prescriptive list at HMRC issue in terms of what is allowable and what is dis allowable there's no such thing they don't do that instead it's a principles-based system there is a principle that they actually issue and this is what we go by and by understanding that principle and how it actually is interpreted will give you a better chance to making a more informed decision at the point of transaction as to whether you feel a particular expense is more than likely going to be allowable or is there a better chance it's going to be disallowed for whatever purpose now the first thing I must say to you is please please please don't let the tax tell wag the commercial dog this is a very very important point regrettably I have dealt with people in the past where they've actually made a decision just based on tax they've incurred expenses just because they're going to get tax deduction tax relief for it regardless of whether that product or service was of any use to them at whatsoever the first thing is first you incur an expense for your business if you feel that expense and that product or service is going to be of use to your business is it gonna enhance your business in any way shape or form is going to improve revenue is it going to improve efficiency is it gonna save you time one it may be it needs to add value to your business and if that is the case then it's worth incurring regardless of whether you get tax relief or not the tax really should be looked at as a bonus pure and simple however nonetheless it's still worthwhile getting that tax relief you'd all want that and we understand that perfectly and that's what this video is all about to help you explain the principle now what I'm going to do is I'm going to jump onto the computer to help you visualize and to absorb the information that we go through this is really about the basics and once we get through the basics hopefully we'll come out the other end in a much better position with a better knowledge to make a more informed decision so let's jump on so the first point of clarification is what do we actually mean by claim expenses through my limited company now unfortunately I have had people in the past that have misinterpreted this and the weights been interpreted is well if one pound has been spent by your business to incur an expense then that one pound will be reimbursed back to the business or the the actual person in question of the business on a pound for pound basis by somebody now that's not always the case there are instances that the former could be true in the sense that you could be reimbursed by your client for example but certainly for certain agreeable expenses we've seen that and you know that's quite common where if you spent a couple of thousand pounds on travel they will fully reimburse you pound for pound so then you're getting that money back but what will never happen is HMRC UK will never ever reimburse you fully for your expenses that just doesn't happen so by the definition of claim expenses through my limited company does not mean you're going to be a hundred percent reimbursed for your expenses what it does mean is that you will get tax relief on expenses that have been deemed allowable through your company now what I've done here is put together an example and let me just give a laser pointer up there we go so I've done a bit of an example there's two columns here where it's exactly the same business it's a very simple example any laws the nuances of the eighty and other more complex nuances that do exist but this is just to get the sort of point and the principle across so here we got the not claimed column and we got the claimed scenario right next to it so let's say your company has earn an income of a hundred thousand pounds in both cases but in the not claimed scenario there's been no expenses incurred therefore nothing put forward for a tax deduction whereas in the claim column there's been twenty thousand pounds physically actually can incur so painful and that's been put forward as tax allowable expenses so what then happens well let's calculate the profit the profit is simple simply income minus expenses so in the first scenario they're not claimed the profit we hundred thousand because it's simply under thousand minus zero in the second it's a hundred thousand minus twenty thousand which turns out to be eighty thousand pounds so there's your profit before tax now important point your corporation tax which at the moment is 19 percent in the UK and that is due to fall to seventeen percent over the next few years so it's a very very favorable kind of tax for UK company owners and the basic math is 19 percent of the profit before tax so in this scenario the absolute value is 19 thousand pounds and in this scenario under the claimed it's fifteen thousand two hundred so what's actually happened is by incurring and claiming the tax deductible expenses you your company ends up playing less corporation tax that's what happened so in this scenario end up paying three thousand eight hundred pounds less corporation tax than if you didn't make those incur and make those claim those expenses now another way of looking at it is quite simple for those expenses what's effectively happen is you've obtained a nineteen percent discount on them that's what's happened so if for example you went and spent one pound incurring an expense which ends up being tax deductible then you in real terms you are only paying eighty-one pence for it although physically or electronically however you look at the money transaction you are paying that one-pound upfront but later on down the line when you come to pay your corporation to actually paying 19 pence less than if you never incurred in claim for that expen so hopefully that clarifies what it means to claim expenses through my limited company now let's go back to the the principle that we touched upon earlier on and it's fairly straightforward in terms of how it reads so any expense incurred must be wholly and exclusively for the purpose and course of your business let me repeat that wholly and exclusively for the purpose and course of your business so if you're gonna remember one thing when it comes to business expenses just please remember that wholly and exclusively for the purpose and course of your business that is what the principle is from HMRC now the difficulty with that is well how do you define in wholly and exclusively for the purpose of course of your business and it is open to interpretation we've come across many scenarios where it's very clear-cut that the the motivation and the intention was wholly and exclusively for the purpose of the business and other scenarios where it's very much being you know in the balance quite subjective and it's anyone's argument it depends on what angle you come in and what side of the toss you really argue so a very very subjective area but let me add a bit more flavour to that particular statement HMRC will allow expenses when there is obviously a business purpose motivating the expense and as long as there is no other obvious purpose so they've gone one step further in saying well that is what we define as wholly and exclusively so again let me just reiterate when there is obviously a business purpose motivating the expenses two key words in there obvious and motivating so what it's looked at is is the intent yeah the motivation the intent and is it obvious is it clear cut sometimes when it isn't obvious when it isn't clear cut you know it may just be let go off it may be you know it's not worth kind of contesting because it's not a material amount but certainly when you got material amounts whether it's accumulated material around or one-off ticket item which is a material amount then you know that that contention becomes even more sort of intense so this is a key point because if there is another purpose HMRC will certainly dispute the expense now let's just dig in a little bit deeper in terms of obvious and my debating I'm gonna give you an example here and the example is business travel so let's say for example you're a you're a a director shareholder of a company a limited company based in London you're actually based in London and that's where the company trades that's where management actually all takes place you've got a client over in Germany so you know you pick up the flight and you take that flight to Germany because the client wants to meet you it's very very clear they want a meeting so you have to go to Berlin to have that meeting what then happens is your Booker a return flight and more than likely if you know involves an overnight stay then you're gonna book some accommodation in a hotel as well now clearly we can in this particular example it's pretty clear already that there is an obvious business purpose motivating the expense for the flights and the accommodation now let's just take one step back let's just say that the Director shareholder planned a holiday to Germany Berlin for a week and then calls up a client and says well actually you know what I'm in Berlin why don't we just meet up and have a general catch-up and the client is like yeah absolutely great for you in Berlin is and there's no harm in doing that now all of a sudden the motivation has changed here the flights are going to be booked and the accommodations going to be booked but is there an obvious business purpose here well it can be argued by the Director shareholder that there is but however HMRC could clearly say well well you know given the circumstances of how it led up you instigated that business meeting and therefore the intent was more for personal gratification rather than business so there you have it there's where you know the wholly and exclusively rule will go and sort of come into to test there are sort of more examples behind that but obviously you know time restricts me on this video to go through each and every one what there is is a link below and if you want to click on that link below what will happen is we do run a service where if you have particular complex scenarios such as that that could get even more complex than that and you know using the wholly and exclusively rule is still not clear-cut to you it could be a high ticket item and that's where it could you know even more contentious then please and I follow that link below because we do run a Q&A service where you can pose your scenario your question in terms of certain expense and our accountants will be more than happy to answer that given our professional knowledge and the level of sort of experience that we have in dealing with these kind of expenses what we haven't have not seen so we can give you a real good scare on that just follow the link below just a oponent general practice all expenses must be supported by valid receipts and documentation except in special special circumstances where dispensations are given dispensations are very very rare they are given in very special circumstances but I won't go into that so much it's always best to get into the habit to to ensure that you've got the right kind of receipt or documentation for any expense now it can be impractical sometimes to collect receipts for very small transactions I mean certain if you buy the coffee in the morning you know 2/3 pound coffee to collect receipts and stick them in your pocket on a shoebox it's very impractical I mean you know we're moving away from that paperless system what can happen there is certainly if you're using you know we're all heading towards a cashless system here at the moment you can use your debit or your credit card contactless normally the the transaction is enough to support that but certainly in higher ticket items you know if you're spending on hardware software production anything like that you know clear receipts and documentation is is needed you must must have that otherwise it will get challenged and it comes on to you know the other point below you cannot plan for something you have not incurred now that is really really important because if even if you incurred it but you haven't got the right sort of level of documentation to support it it could just be a transaction in your bank account but a lot of times if you look at transactions on bank accounts you know the description can be absolute gobbledygook it's not really clear all the time as to what it pertains to so from HMRC's point of view they won't rely on that they won't accept that always as evidence so always keep your receipts and documentation just in case you have a investigated or challenged on certain items contractors and freelancers now there are some special rules when it so expenses for contracts from freelancer base limited companies one of the examples is a two-year war now I'm not going to go into it in any kind of detail on this video but there is this is cupboard or these rules are covered in another video in more detail if you get to the end of this particular video or if you subscribe to our Channel certainly what we'll bring up is a the whole sort of a selection of videos that we have and you will find a video which pertains to contractors and free dancers special rules for expenses so do go over there or wait to the end of this video and hopefully it should come up at the end where to go next in order to find that video now what I'm going to do here is just list the common type of expenses that I've heard by contractors freelancers and SME businesses small businesses trading businesses alike this list is certainly not exhaustive but probably covers around about 75 to 80 percent of the common quantum of expenses incurred by most limited companies there are you know more than this but this will certainly come with the bulk of it so what we've got here is accommodation accountancy fees books periodicals and professional subscriptions business insurances director salaries employee salaries hardware and incidentally guys there is a video for each and every one of these expenses and if it doesn't exist now it is currently under production so there will be a video for each and every one of these expenses because what I really want to do is really get under the bonnet of them give you the meat and give you some different scenarios as to where it would be allowable typically and where it wouldn't be an hour for typical according to experience in HMRC rules so there's a separate video for all of these it's not covered here this is just a list to give you a bit of a flavour moving on home office and rent life insurance premiums meals and subsistence mobile phones telephones pension contributions software I mean that could be software subscriptions it also could be the production of software so software build training travel expenses so these are typical expenses that are currently being occurred or will be incurred by you if you have a limited company even if you're a sole trader and partnership now some typical non allowable expenses so again you know by principle you know most of the time in most occasions these kind of items are not allowed but there are special circumstances where they will get tax deduction and this is why I say there's no hard and fast prescriptive list of yes or no it's not linear it's not black or white so entertainment is a classic area it's an area where you know a lot of people is still immense misconception that if I was to entertain clients you know I'll get tax relief in most cases you won't but there are some special circumstances that you will and we'll go through that again in a separate video clothing again you know in most cases not that again special circumstances that there is and generally speaking expenses where duality of purpose clearly exists what is duality of purpose well duality of purpose is where it's very clear that there's a personal gratification to that expense so if we go back to the motivating factor in the example of that flights of Berlin for example then once we got the full of information that the director shareholder was actually planning a holiday there and for we had just doubled up and gotta meet a client well there is a clear do ality of purpose there and it clearly exists were therefore more than likely HMRC will disallow that particular expense on the flights and the the accommodation but anyway I won't go into too much detail on that again it's covered by a separate video and certainly this concludes this particular production I hope you found it useful and just says and then note again there is a link below if there's any kind of questions you have in terms of specific expenses that you've been caring or specific scenarios that you're facing that again this video can't help you clarify then just follow that link below and we do run a service where our accountants will take your questions your scenario and give you answers on your your particular scenario with regards to the expenses so professional accountants who have done this for many many years seen many different scenarios and can really help you clear the mist and give you clarification on your particular expense would more than likely be allowable or not as a case VP if you if there's any other questions you have any other expenses you want us to cover please you know comment below like and subscribe the channel because you know it's gonna be a lot of productions coming out in terms of giving you a detail and the real purpose and objective is to really give you the knowledge and to you know enhance your financial literacy get through the smoke and mirrors of all these rules and different guidance points and really break it down and simplify it for you as so as a company owner or a sole trader partnership you can make more informed decisions at the point of transaction and you're armed with that particular knowledge thank you guys for watching and I'll see you on the next production

Channel: Tony D | The Chief Finance Officer

Views: 31,212

Keywords: expenses, ltd co, limited company, tax deductible, tax, allowable expenses, accounting, monthly expenses, entrepreneur, travel expenses, accomodation expenses, home office, food expenses, ir35, reimbursed expenses, accounting for expenses, wealth protection, enterpreneur, company car, company van

Id: ExijP4lvFW4

Length: 18min 15sec (1095 seconds)

Published: Fri Jul 05 2019