Expenses for limited company directors: a complete guide! (Part 1)
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When you are a director of a limited company, it might seem daunting to keep track of your expenses.
Being business savvy and aware of what expenses you can claim tax relief for is essential to business success. No matter what the size of your limited company, there are certain expenses that you can claim for that will allow it to stay tax efficient. Reducing your profit and reducing your corporation tax payments, it will help you to save money in the long term.
It’s important to remember that as a director of a limited company, you should still pay for your personal expenses – which will come from your personal account. Business expenses, on the other hand, should be kept separately and should be paid from the business bank account.
This is part 1 of our 2-part blog series on claiming expenses as a limited company director. Are you ready?!
No matter if you have a home office or an external business premise, there are expenses that you can claim for. You can claim on the associated costs that are accrued by using the premises, which will be made tax-deductible.
If your business rents an external office space (also applicable to full business lease or an ad-hoc room), the cost of the rent, utilities and other premise expenses will be covered by the business.
When you work from home, your business can repay you for some of the costs that you accrued. There are two main things that you can claim for when you have a home office:
1 - Basic allowance
HMRC allows you to claim up to £26 per month for using your home office if you work at least 25 hours per month from home. You won’t have to justify the costs, but you will have to keep track of invoices, administrative tasks and business notes.
2 - Apportioned cost
When you work from home one day a week and you have an office within your home, you can claim money back that can be spent on household bills. However, HMRC will take into consideration a few factors before deciding how much you are reimbursed for. These can be...
Costs: how much money is working from home costing you? What can be attributed to business usage? As well as mortgage interest rent, you can usually claim on electricity, gas and water. Landline/broadband might also be considered. You will have to provide HMRC will evidence and calculations of this if they enquire about it.
Office space: do you have a functional work space that’s only used for business? HMRC may check this.
How often you work from home: HMRC will query how often you use your office for business purposes.
Accountancy, legal and other professional fees
As a limited company, you will want to ensure that your company accounts are kept in order. That’s where an accountant comes in. Accountancy fees (such as tax planning advice and bookkeeping) can be claimed on, as well as other professional fees such as legal and consultancy. By claiming for the full cost of these services, your business can experience tax relief.
Business start-up costs
If you are a director of a start-up company, there are certain costs that you can claim tax relief on - even if they were accrued before your business was established or it started trading. Examples of which are legal costs that incurred when you were setting it up. However, it’s essential that you check what start-up costs you can claim for by asking the advice of your accountant.
As a limited company, you can also claim tax relief for consultancy and professional fees – such as lawyer and solicitor fees. These types of fees may be attributed to your business after you have acquired a new lease or you have created a new business contract. However, not all professional services are applicable. It’s important that you seek advice first before claiming in order to get a better idea if it is suitable and tax-deductible.
Marketing and advertising
No matter what industry you're in, when you run a limited company it’s clear that marketing and advertising is one of those unavoidable costs. But did you know that you can also claim tax relief on the fees associated with advertising and marketing? You could claim on social media advertising, pay-per-click advertising and more. However, not everything is covered under this. For example, if you go out for a business lunch with a client, you will not be able to claim back for it under marketing fees - this will instead be considered as an entertainment cost (more on that in parts 2 and 3!).
Business website costs
All companies want a good website in which to promote their products/services. But good websites don’t come cheap. You'll be pleased to know that you might be able to claim tax relief on the initial cost of building your website, alongside maintaining it. Your accountant will be able to advise whether or not your hosting and domain costs are also covered.
Next week - part 2!
Next week in part 2 of this 2-part expenses series, we will be looking at:
Insurance: contents, professional indemnity, public liability and employer's liability
Private medical insurance, medical treatment, and is life insurance worth it?
Travel insurance including accomodation and other fees
The other types of expense you can claim back as a limited company director
In the meantime, if you have any expenses-related questions, please do get in touch! Book a call with Nicola here, or send us an email.
You can also download our free, detailed guide on all the expenses you can claim as a limited company director by clicking here.
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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