The costs of goods, materials or services purchased by a
business which are for private use are not allowable for
tax purposes. The disallowed element also applies to goods
and materials bought for business use which are
subsequently used for private use.
Payments made by the business for none business work are
not allowed.
A limited company can claim the wages and salaries of
directors as a valid business expense. If the business is
self employed then the proprietors own wages and drawings
are not allowable as business expenses as such costs are
distributions of the net taxable profit and not deductions
from it. Also included in this category of disallowed
expenses relating to the proprietor wages would be national
insurance contributions, income tax payments and pension
contributions
Pension contributions are an allowable personal expense
which the small business owner would claim as tax
deductible from the overall tax burden but not in the self
employment accounts.
Motoring costs are a specifically defined area of non
business expenses. Private use of the vehicle which may be
used for business purposes is not allowed for tax purposes.
Also disallowed are motoring fines including parking fines,
any legal costs involved. The capital cost of buying
private vehicles is not an allowable expense and also
disallowable are travel costs from home to place of work
and meals not associated with business travel.
The cost of any non business premises or non business part
of the premises is disallowed for tax claims. The capital
purchase price of premises is not allowed as a tax
deduction as such purchases are treated as capital assets
and subject to the tax rules applying to fixed assets.
Repairs of non business parts and equipment are not allowed
as claims against tax liabilities. Costs of improving or
altering premises or equipment are not allowed as tax
deductions as these costs are added to the fixed asset
costs and claimable under the capital allowance rules.
Non business use including private use of telephones, faxes
and computer equipment and other hardware items are
disallowed fore tax purposes.
Entertainment expenses of clients and suppliers are not
allowed for tax purposes. Also disallowed are expenses
incurred for meals of non employees who accompany the
business owner on business trips unless that person has a
valid business reason for being on the trip. Hospitality is
generally not an allowable expense although entertainment
of employees at Christmas or special events is allowed
within restricted financial limits.
The capital element when repaying loans, overdrafts or
other financial arrangements are not allowed as business
expenses as these items are balance sheet items and not
profit and loss items, the profit and loss being the
calculation of the net taxable profit.
Bad debts represent an area where specific rules apply.
Specific identified bad debts are allowed for tax purposes
but general bad debts where a percentage is applied to the
sales value as likely to become bad debts is not allowed as
a tax deduction. Debts which have not been included in
sales turnover are not allowed as such debts have not been
accounted for and also bad debts on fixed assets are not
allowed as the loss is accounted for in the capital
allowances calculations.
Legal costs of buying property or equipment are not allowed
for tax purposes as such costs are treated as capital
expenditure and included in the purchase price of the asset
and subject to capital allowance rules for reclaiming
allowances over the life of the asset. Costs of settling
tax disputes are not allowable and also fines imposed upon
the company bare not allowable tax expenses.
Depreciation of fixed assets is a management decision and
not allowable for tax purposes. If depreciation is deducted
from the management accounts to report the net profit for
tax purposes the depreciation is then added back as the
allowable tax claim is the capital allowance applicable to
those capital fixed assets. Same with profits and losses on
the sale of fixed assets which are accounted for under
capital allowances.
Specific work uniforms and clothing is allowable whereas
ordinary clothing albeit suitable for the work being
carried out is not allowable.
Small self employed business may not claim donations to
clubs, charities, associations or political parties are not
allowed for tax purposes. Subscriptions to trade
associations which could be connected to the business
objectives would be allowable as being for business
purposes.
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Terry Cartwright, accountant and CEO at DIY Accounting,
designs accounting software
http://www.diyaccounting.co.uk/smallbusinessaccounting.htm
on excel spreadsheets providing complete single and double
entry bookkeeping systems
http://www.diyaccounting.co.uk/bookkeeping.htm
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