Generally, business expenses incurred necessarily and exclusively for business are allowed for tax purposes. However, there are some non-deductible business expenses when come to calculating your tax liability.
For example, where the expenses incurred relates to both business and private use, the personal use portion is not tax deductible for your company. At the same time, you must add it back to your business accounting profit when calculating your tax liability.
Likewise, a motor car is used for both business and private purposes. The capital allowances and the total car running expenses will be split in proportion to the business and private mileage. For this purpose, you will need to keep records of your total mileage and the number of miles travelled on your business. In order to calculate the correct amount of motor car expenses for your business.
Entertaining customers are non deductible business expenses
Usually, entertaining expenses are not tax deductible. However, staff entertaining expenses and gifts to employees are deductible but there are restrictions. Seek accountant advice on this.
Bribes, kickbacks. fines, penalties and lobbying costs.
These expenses are self explanatory of why they are not tax deductible.
For example, Companies House statutory filing fees for filing your confirmation statement is deductible. However, the late filing penalty for delivering your company accounts late is not a deductible expense for tax purposes.
On one hand, If you have just started your business, you may be wise to consult a tax accountant advice especially if your start-up costs are rather large.
Working from home
On the other hands, If you are working from home, you will need to keep sufficient records. For example, to back up the proportion of heating and lighting costs that relate to your business and your private use.
Life insurance premiums
A business may buy life insurance coverage on key officers and executives. However, if your business is the beneficiary, the premiums are not deductible. Consequently, the proceeds from a life insurance policy are not taxable income to your business in the event of death. Because the cost of the premiums was not deductible. In short, premiums are not deductible, and proceeds upon death are excluded from income tax.
Travel and convention attendance expenses
Occasionally, some businesses pay for rather lavish conventions for their managers. Sometimes, spend rather freely for special meetings at attractive locations that their customers attend for free. The UK tax office takes a dim view of such extravagant expenditures. They may not allow a full deduction for these types of expenses. The HM Revenue and Customs (HMRC) holds that such conventions and meetings could have been just as effective for a much more reasonable cost. In short, a business may not get a full deduction for its travel and convention expenses if the HMRC audits these expenses.
Transactions with related parties
The HMRC takes a special interest in transactions where two parties are related in some way. For example, a business may rent space in a building owned by the same people who have money invested in the business. Thus, the rent may be artificially high or low in an attempt to shift income and expenses between the two tax companies or individuals. In other words, the transactions may not be at arm’s length basis. For this reason, a business that deals with a related party must show that the price paid or received is at current market value.
Lastly, seek advice from tax accountants if you have incurred business expenses that you are not sure whether they can be claimed against your business profit fully or partially.
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