One sure way to reduce taxable profit and to ensure that you do not overpay tax is to account for all the business expenditure and claim all the allowable tax relief.
Before I go on I want to list the three different categories for business costs:
- Capital
- Business/Revenue Expense
- Personal
This article looks at number 2 Business /Revenue expense. For more information on the differences you can read the Business Costs Blog here.
Some business owners are so cautious when they complete their accounts that they miss out on valuable tax relief with profits dripping back into the business. Other business owners are too bold and will claim for anything and everything to save on tax. The latter can land you in hot water with HMRC so how can you make sure you claim the right amount of tax relief on your business expenses.
First you need to understand what an allowable business expenditure is. The guidance is simply if a business incurs a cost wholly and exclusively for the purpose of its trade, profession or vocation then this cost is allowable.
If a non-trade purpose is identified this fails the test, unless an identifiable part of the cost can be identified as being wholly and exclusively for the purpose of the trade, profession or vocation. An example of this would be an itemised telephone bill, where you can clearly see the business and personal calls and differentiate between the two. Not so common now with all the bundled deals but an easy example to demonstrate the split between business and personal.
Sometimes it can seem too difficult to establish the business use of an expense such as the cost of electricity when working from home or the business proportion of using your vehicle for business trips but don’t worry as HMRC have been helpful in providing simplified expense rates for use of home and car expense that are detailed below.
The flat rate for use of home does not include internet and telephone and the vehicle mileage takes into consideration all the cost of running the car.
Working From Home
You can only use simplified expenses if you work for 25 hours or more a month from home.
| Hours of business use per month | Flat rate per month |
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 and more | £26 |
(Gov.uk/simpler-income-tax-simplified-expenses/working-from-home)
Business Mileage
Do note that you cannot use the below flat rate if you have already claimed capital allowances for or already included as an expense.
| Vehicle | Flat rate per mile with simplified expenses |
| Cars and goods vehicles first 10,000 miles | 45p |
| Cars and goods vehicles after 10,000 miles | 25p |
| Motorcycles | 24p |
(Gov.uk/simpler-income-tax-simplified-expenses/vehicles)
You can also work out the business proportion by way of a percentage as long as this can be justified, so do keep your calculations and use the same treatment each period unless circumstances change. For example if you move to a larger working area or property the current rate that you use to allocate business use of home may no longer be correct.
Once you have identified the allowable business expenditure you can add this to the business accounts, it is better to do this as you go and I encourage my clients to use Receipt Bank to capture the business expenditure with ease to ensure that everything is recorded for the accounts. It is something that I feel every business owner should use and for that reason I now include this as an option for all clients to sign up for a Receipt Bank account when they sign up to a subscription service package with Ria-Jaine and Co Ltd.
Read on for a list of some of the most common expenses in the beauty industry, don’t worry if you work in a different industry the list is not exhaustive but will give you a guide as I have used generic headings with beauty business examples:
- Stationary (loyalty cards, price lists, flyers)
- Accountancy Fees
- Products (lash glue, nail, glue, gel polish)
- Consumables (couch roll, nail files, cotton wool pads, lash wands, wooden cuticle sticks, gloves)
- Salon/chair or desk rent
- Staff or Subcontractor costs
- Insurance
- Bookkeeping software
- Business Bank Fees/Interest paid
- Marketing
- Telephone
- Internet
- Use of home
- Business Mileage
- Subscriptions
- Business Use of Mobile phone (you must remove the private use)
- Travel costs (does not include travel to your regular place of work)
- Legal and financial costs
- Clothing expenses (safety clothing or uniform required for work, see rules)
- Training (only when topping up an existing skill and trade as opposed to learning a new skill)
I hope this is helpful, do leave a comment below if you have any questions or feedback at all
Book a free call today to see how we can save you time and taxes or to read more on the benefits of submitting your tax return early see our other blog here.
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Friendly disclaimer: The information contained in this article is for guidance and information purposes only. It should not be relied upon as full and complete accounting, tax or legal advice. For specific advice relevant to your own situation please speak to Ria-Jaine MAAT or another professional direct.
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Ria-Jaine Lincoln is an award winning accountant ranking in the top 50 women in accounting worldwide. You can find Ria at the below events in 2020