Small businesses face a daily struggle to maintain cash flow and lower their bottom line, especially in the post-COVID climate. When every day seems like a struggle for revenue, keeping your expenses down is more important than ever. If there’s one thing that no business can afford, it’s a needlessly high tax bill. Yet businesses overpay on their taxes every year because they don’t know what expenses are tax-deductible.
Small businesses are taxed on their profits, not their revenues. So if you fail to declare your tax deductions when submitting your tax return, you could be disproportionately taxed. Here, we’ll look at 6 tax deductions for small businesses that can offset your liability and prevent you from sacrificing your margins to HMRC. With each, be sure to keep hold of your receipts. Use a software platform like Receipt Bank rather than hoarding your physical receipts (and risking them going missing).
Business owners are true autodidacts, constantly learning and growing. Your daily literary diet probably consists of lots of business books, professional journals and relevant magazines. Fortunately, these research costs are all tax-deductible. If it’s relevant to your business and your industry, it’s an expense that can be offset against your tax bill.
When buying a car through a limited company, the tax treatment depends on how you pay for the car. If you’re financing the car through a loan or hire purchase, your interest payments are the only payments that are tax-deductible. You can also claim a capital allowance of between 6% and 100% depending on the car’s emissions. If you’re leasing the car, the monthly lease payments can be claimed as a business expense.
Vans and motorcycles, however, are different. These are technically classed as machinery and plant, and purchases are 100% deductible.
Mileage for business trips (not including your regular commute to work) can also be deducted at a rate of 45p per mile for cars and vans, and 24p per mile for motorbikes.
Plant and machinery
Although the term conjures up images of heavy industrial machinery, plant and machinery costs apply to all kinds of manufacturing, computing and office equipment. Everything from desktop computers, printers, scanners and photocopiers to office furniture such as desks and chairs can be claimed.
Subsistence and business lunches
You cannot claim meals for yourself or your employees at your normal place of work. You can, however, claim for meals consumed outside of your workplace. For instance, if you and your team are engaged in a project off-site, you can claim meal expenses for yourself and your team. However, you cannot claim the cost of taking a client out to lunch.
The costs of communicating with clients and other businesses can quickly add up. The good news is that telephone expenses are tax-deductible. However, the rules are different for different phones.
Home landline phone costs are only deductible for specific business calls. The cost of your line rental is not included. Office landline costs are 100% deductible, as are company mobile phones (as long as the contract is in the company’s name and personal use is kept to a “reasonable” minimum).
Home office expenses
Finally, many small business owners have been carrying out much (or all) of their work from home over the past 18 months. Small business owners who regularly work from home can claim a flat-rate tax deduction of £4 per week. Fixed expenses like rent, mortgage or council tax cannot be claimed as tax deductions.
We can help
If you’re interested in finding out more about any aspect of your business finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.