Cryptoassets and Tax

Are you looking to purchase your first cryptoasset? Or maybe you have already made a jump into cryptoasset investments? Either way, it is important to understand the quantum and timing of your tax exposure as well as what records you need to keep.

Tax – basic treatment

HMRC considers cryptoassets a capital asset held for investment purposes. This means that sales or disposals of cryptoassets will usually generate a capital gain or loss for tax purposes. Capital gains are subject to Capital Gains Tax (“CGT”).

Capital gains may occur when you:

  1. Sell cryptoasset tokens
  2. Exchange cryptoasset tokens for a different type of cryptoasset token
  3. Use cryptoasset tokens to pay for goods or services
  4. Give cryptoasset tokens away to another person (excluding a spouse or civil partner).

The gain on the disposal of cryptoassets are typically the cryptoasset value at disposal in £GBP less:

  • The cost of purchase
  • Transaction fees
  • Advertising for a purchaser or a vendor

Purchases and sales of cryptoassets are “pooled” for tax purposes. Each type of cryptoasset is to be kept in
its own pool.

The specific method of taxation and the amount chargeable depends on whether the investment is held by an individual, or within a structure such as a limited company – see below for the difference.

Individuals

Net cryptoasset gains after the utilisation of any available capital losses in the tax year to 5 April should be reported
on a self-assessment tax return. Any tax due becomes payable by 31 January following that tax year end.

Each individual in the UK is also entitled to an Annual Exemption (“AE”) from CGT. The 2021/22 tax year the amount is £12,300.

Companies

Disposals of cryptoassets within a company structure will be reported on the company’s corporation tax return. Any
resulting tax will fall due 9 months and 1 day after the end of the company’s accounting period.

The gain is chargeable to corporation tax, currently at a rate of 19%. The AE is not available to companies.

Traders

In some exceptional cases HMRC may consider cryptoassets activity to be a trade. Whether the buying and selling of
cryptoassets amounts to a trade will depend on a range of factors including:

  • Frequency
  • Level of organisation
  • Intention

Record keeping

HMRC state that it is the taxpayer’s responsibility to keep separate records for each cryptoasset transaction.

Such records include:

  • The type of cryptoasset
  • Dates of transactions
  • If they were bought or sold
  • The number of units involved
  • Values of the transactions £GBP (at the date of the transactions)

Click here to read our fact sheet on cryptoassets

If you have a lot of cryptoasset transactions, it might be advisable to make use of a UK tax compliant cryptoasset-tracking software to record your gains.

Find out more

If you need professional advice in connection with a cryptocurrency asset, please get in touch with one of our team.

Can a limited company help to pay for your garden office?

The COVID-19 crisis stretching out longer than initially predicted. With this, there has been an increase in people having to work from home for sustained periods of time. This has lead to the need for a more sustainable home office set up, evolving way beyond a laptop on the kitchen table.

People are looking towards more permanent fixtures. They need a separate workspace with no family or flatmate distractions, where you can dedicate the time and headspace needed for all those Zoom calls, presentations and emails.

If you’re fortunate enough to have the space, could the garden office be the perfect answer? If so, what are the costs involved – and how do you pay for your garden office?

How much does a garden office cost?

You could build yourself a fairly decent office shed with basic amenities such as heat, lighting and insulation for around £1,500. However, if you were looking for something a bit more on spec then you could be looking at anything between £10,000-£20,000.

On a positive note, the cost of a garden office can be put through your limited company. However, it does come with a few tax implications.

Tax benefits and relief on the costs

A garden office is considered a building for tax purposes. Although the costs of the actual construction and installation is not tax deductible, the company can pay for it.

Generally speaking, this can be the most tax efficient way to pay for the structure. Otherwise, you would have to pay for it from your personal income after tax.

Furthermore, while you can’t claim tax relief on the build itself, you should be able to claim for the costs of fixtures and fittings. This can include things like; electrics, plumbing, insulation, carpets, blinds and curtains, paintings or mirrors and lamps and lampshades.

What about VAT?

Providing your company is VAT registered, it will be able to claim back the VAT on both the cost of the construction and installation, and the contents (i.e. fixtures and fittings) of the garden office.

The company can also claim back VAT on electric, plumbing and water charges for the garden office.

If there is private use of some of the garden office, the opportunity to reclaim VAT may be restricted to only the business use element. This may need to be reviewed regularly if personal use changes over time.

Restrictions may also apply for instance if you are using the Flat Rate VAT scheme. You will only be able to claim back the VAT if you have spent over £2,000 or more on a single capital expenditure purchase. If this is applicable to your limited company, you should speak with our team who can provide you with expert VAT advice or your current advisor.

Personal use

If you plan to use your garden office for personal use, consideration will need to be given to the difference in business and personal usage. The company can only claim back the VAT for any business use.

There are also other tax considerations that may need to be addressed if the garden office is going to be used as a personal space in addition to business use.

You will also need to consider if there is any duality of purpose on purchases such as fixtures and fittings used on the building.

Garden offices and planning permission

The location and size of a garden office will determine whether you need planning permission before proceeding. Most conservatories, garages and garden offices do not need permission before building work can go ahead.  

It’s always best however to seek advice from an approved professional or your local planning authority just to ensure your plans do not require permission before going ahead.

Other things to be aware of include a potential exposure to business rates and whether it would impact your insurance cover and mortgage contract.

Tax considerations on a garden office when you sell your home

When you come to eventually sell your home, a small capital gain may arise on the proportion of your property value attributable to the land on which the garden office sits. However, if not utilised elsewhere, your annual exemption allowance (currently £12,300) may be available to offset against the gain, potentially reducing this to nil such that no capital gains tax liability is due

The company will be the entity disposing of the garden office. A small element of the sale proceeds for the disposal of your home should be attributable to the company.  Any gain arising in the company would become liable to corporation tax. Tax consequences may arise on you personally if you fail to reimburse the sale proceeds attributable to the garden office to the company. 

HMRC are increasingly taking an interest into this area. It is therefore a good idea to fully understand what your potential tax exposure might be.

Find out more

If you have any questions, please get in touch with one of our team.

HMRC issues new guidance for football agents on tax payments

New guidance from HMRC has been released regarding the payment of football agents.

The guidance pays particular attention to agent negotiations on behalf of a player or club. For example when managing a transfer to another club or renegotiating a contract, this is referred to as dual representation.

In cases of dual representation, it might be necessary to split the payment made by the club to the agent to reflect the extent to which the agent represented the club and the player. This will help determine how much of that payment is attributable to the services provided by the agent to each of them.

Previously, HMRC accepted an equal split between the services provided to both the club and the player. However, the new guidance from HMRC’s states it will no longer accept a default split. “An evidenced and commercial justification” must be made for payments.

Keeping score

HMRC has made an increasing number of personal tax enquiries on footballers over recent years. This guidance marks the start of the formal procedure. Under the new guidance, if a contract states that the agents fee is to be paid by both the club and player, clubs will only be able to rely on the contractual split if is in accordance with that of the negotiations. They will have to keep detailed records in the form of an audit trail as of evidence of this.

HMRC expect clubs to employ adequate governance regarding money laundering requirements, specifically concerning its payments to overseas individuals or entities.

Full details of the HMRC’s new guidance can be found here.

Find out more

If you have any questions, please get in touch with one of our team.

Twitch introduces local subscription pricing

In response to feedback from its users, Twitch is to scrap its one tier sub rate of $4.99 USD. It will instead introduce local subscription pricing.

Twitch say the change is being rolled out to help viewers support their favourite creators by making sub prices more affordable where they live. Viewers still get to enjoy the benefits of a subscription ,and for creators can continue to grow their communities.

Ringing in the changes

In the coming months, adjustments will be made to the price of subscriptions in most countries to meet local costs of living. The plan is being launched first in Mexico and Turkey on the 20th May. The creators will be asked to give feedback before prices are adjusted for most countries in Asia, Latin America, the Middle East, Africa and Europe.

To raise awareness, creators can unlock viewer support by setting sub goals on their channels, promoting sub gifting through leaderboards and motivating viewers to help them unlock more emote slots.

The platform says another reason for the pricing change is that there is a major discrepancy between active subscribers in the US when compared to the rest of the world. This makes the translated $4.99 price “difficult for many viewers” to pay the subscription price.

A blog by Twitch describing the changes sited:

“The percentage of active users in Europe or Asia who support creators with a subscription is roughly 50% lower relative to North America. In Latin America, it’s nearly 80% lower.”

“It’s time for subscription pricing that’s adjusted for where viewers live. Prices that make it so more people than ever can feel comfortable showing their support and enjoying the benefits of a subscription.”

The full guide on Twitch’s new Local Subscription Pricing can be found here.

Find out more

For further information or advice on how these pricing changes may affect you, get in touch with one of our team.

Influencers and Instagram competition rules

Earlier last month it was reported in the press that Love Island star Molly-Mae Hague had failed to follow the Advertising Standards Authority (ASA) rules. This was in relation to running an online prize draw on her Instagram account for a well-known clothing brand.

Until recently, the focus of the ASA has been on those who simply failed to flag paid-for posts as being ads, however the authority is now pursuing a wider range of cases against influencers.

Best practice for Influencers and advertising

The ASA non broadcast code covers all other areas of advertising outside of TV and Radio broadcast. This includes:

  • Adverts in newspapers and magazines
  • Mailings
  • Emails
  • Text transmissions
  • Adverts in non broadcast electronic media
  • Marketing databases containing consumers’ personal information
  • Promotions in non broadcast media
  • Adverts and other marketing communications by or from companies, organisations or sole traders on their own websites

Any resulting posts from an influencer who receives a gift from a brand either in the form of a free gift, payment or any other perk, becomes subject to consumer protection law. Brands with control over the content the Influencer posts also become subject to the UK Advertising Code.

Self promotion

Other rules are still likely to apply to your content if you are advertising your own products/services or engaging in affiliate marketing. It’s a good idea to familiarise yourself with the ad rules and legal requirements, especially if you are:

  • Running prize draws and “giveaways”
  • Advertising products that feature an age restriction element (such as alcohol or gambling)
  • Making claims about your product (which you will need to back up)
  • Promoting products which carry a lot of their own rules such as food or health supplements

It is the responsibility of both the brand and the influencer to disclose their commercial relationship upfront. The golden rule is to make it clear that ads are ads.

Download the full ASA’s Influencers Guide for a comprehensive breakdown.

Find out more

If you have any questions, please get in touch with one of our team.

Update to YouTube’s’ terms of service

Take action now to avoid withholding tax on YouTube income from June 2021.

From 1 June 2021 creators in the YouTube Partner Program receiving income from viewers in the US may be subject to tax being withheld on payments from YouTube due to changes in US tax law.

However, UK resident creators will be exempt from such US withholding taxes. This applies to both UK resident individuals and companies. This means you will continue to receive your royalty income from YouTube in full. This income will only taxable in the UK, as usual.

You will need to apply for the exemption by notifying Google of your UK residency or your company’s UK residency status by Monday 31 May 2021 in order to avoid withholding tax being deducted from your YouTube income.

Who will be affected?

This will affect creators in the YouTube Partner Program (YPP) receiving income from viewers in the US from:

  • Ad views
  • YouTube Premium
  • Super Chat
  • Super Stickers
  • Channel Memberships

What is tax witholding?

Simply put, tax withholding is when taxes are deducted at source from your income so that they can be paid over to a government to satisfy your tax liability. Under US tax law Google is a withholding agent and is therefore required to comply with US tax law. As a result, Google need to withhold taxes on relevant YouTube earnings, where appropriate.

What action should you take now?

If you are a UK resident creator, you will be able to claim the exemption by preparing and submitting the relevant W-8 BEN/E form which can be done through your AdSense account. The forms will provide Google with all the necessary information needed to ensure you do not suffer from any tax withholding.

We strongly recommend that this is completed as soon as possible.

If your relevant tax information is not provided by 31 May 2021 Google may be required to withhold tax using the maximum tax rate.

Google have provided the following instructions to assist you in submitting the relevant form and claiming the withholding tax exemption:

  • Sign in to your AdSense account.
  • Click Payments
  • Click Manage settings
  • Scroll to “Payments profile” and click edit next to “United States tax info”
  • Click Manage tax information
  • On this page you’ll find a guide that will help you to select the appropriate form for your tax situation

As the changes are being introduced from 1 June 2021, we strongly recommend that this is completed as soon as possible.

Get some help

If you have any questions regarding the changes or require assistance with completing the relevant forms, please get in touch with one of our team.

Your guide to year-end tax planning

As we approach the end of the tax year, now is the time to review your tax affairs. You can ensure that you have taken advantage of all reliefs available to you. You can consider a few tax planning opportunities to help reduce your tax bill.

This blog covers some of the key topics you might find useful when it comes to getting your taxes in order for the coming year.

Income Tax

For 2020/21, the tax-free personal allowance is £12,500. The next £37,500 is taxed at the basic rate of 20% (7.5% for dividend income).

Higher rate tax of 40% (32.5% for dividends) is charged on income above £50,000. The additional rate tax of 45% (38.1% for dividends) is charged on income above £150,000.

The personal allowance is reduced by £1 for every £2 of income above £100,000.

Transferring income yielding assets, or an interest in those assets, to a spouse or civil partner ensures both parties have income to use up relevant allowances. Take advice before doing this as there may be other tax implications.

Note that dividends are treated as the top slice of income. The basic and higher rates are first allocated against other income.

Tax Favoured Investments

Individual Savings Accounts (ISAs) are an excellent investment for higher rate taxpayers. The maximum allowance is £20,000. You must save or invest by 5 April for it to count for that year. If you don’t use the allowance it is lost.

The ISA family has grown considerably since its inauguration in 1999, with a further five ISAs to consider:

  • Help to buy ISA
  • Inheritance ISA
  • Lifetime ISA (LISA)
  • Flexible ISA
  • Innovative Finance ISA

Enterprise investment schemes and seed EIS Shares

Tax relief is available where you subscribe for shares qualifying for Enterprise Investment Schemes (EIS) or Seed EIS (SEIS) relief.

Under the EIS scheme, your tax liability for the year may be reduced by up to 30% of the sum invested. In addition, capital gains from disposals in the previous 36 months or following 12 months may be reinvested into EIS shares, resulting in a deferral of the gain.

Income tax relief is given at the rate of 50% of the sum invested. Relief may be given against tax in 2019/20 or 2020/21.

Venture Capital Trusts

Venture Capital Trusts (VCT) are specialist tax incentivised investments that enable individuals to invest indirectly in a range of small higher risk trading companies and securities.

Up front income tax relief at 30% of the amount subscribed. This is subject to a maximum investment of £200,000 per tax year. The investment must be held for a minimum of five years in order to retain the income tax relief.

Family Investment Companies

Family Investment Companies (FIC) can be a useful way to protect family wealth. The most appropriate structure will depend on the family’s circumstances and objectives. An FIC enables parents to retain control over assets whilst accumulating wealth in a tax efficient manner and facilitating future succession planning.

Gains in an FIC are taxed at 19%, compared to most individuals and trustees who pay up to 28%.

Any investment gains and income could be paid into a pension plan for the benefit of the shareholders.

Pensions

From 6 April 2016, the standard annual allowance (AA) of £40,000 for pension contributions (the total of personal and employer contributions) was reduced by £1 for every additional £2 of an individual’s ‘adjusted income’ over £150,000.

This could still affect you if your income from all sources was over £110,000. However, from 6 April 2020, the thresholds were increased and the reduction only applies if an individual’s ‘adjusted income’ is over £240,000. This can still affect you if your income from all sources is over £200,000.

Lifetime Allowance Considerations

Although funds invested within a pension can grow tax free, there is a limit (the lifetime allowance – LTA) on the total amount you can hold in a pension pot. Funds in excess of the limit will suffer penalty tax charges when you start to take pension benefits. The LTA reduced from £1.25m to £1m from 6 April 2016.

Stakeholder Pensions

Stakeholder pensions allow contributions to be made by, or for, all UK residents, including children and grandchildren from birth.

Consider making a net contribution of up to £2,880 (effectively £3,600 gross) each year for members of your family, even for those who do not have any earnings.

The earlier that pension contributions are started, the more they may benefit from compounded tax-free returns.

Flexible access from age 55

Pension investors aged at least 55 (rising to 57 from 2028) will be able to access their pension fund as a lump sum if they wish. The first 25% will be tax free and the rest will be treated as taxable income and will be subject to
income tax at their marginal income tax rate.

You can also choose to take your pension in smaller lump sums, spread over time, to help manage your tax liability.

Reviewing your retirement plans

The new rules give considerable freedom of choice. Under the new rules, whilst nobody will be forced to buy an annuity at any age, those who wish to do so can at present. This may prove to remain the most appropriate solution for some people.

Your pension pot – a tax efficient way of keeping it in the family

Important changes are also taking place with regards to how pensions are treated in the event of your death.

Retaining pension wealth within the pension fund and passing it to future generations is now an extremely tax efficient estate planning solution. It combines inheritance tax (IHT) free inheritance with tax free investment returns and potential tax-free withdrawals.

From April 2015, you can nominate who inherits your pension fund. It can be anyone of any age and is no longer restricted to your ‘dependents’.

Enhanced Tax Reliefs

Small and medium sized enterprises (SMEs) are given an enhanced deduction against tax of 230% of the actual eligible costs incurred. They also have the chance of actual cash refunds in loss making situations.

For large companies, the basic tax relief is an “above the line” taxable credit of 13% from 1 April 2020 (12% from 1 January 2018 to 31 March 2020) of qualifying expenditure.

In some cases, small or medium sized companies may be able to claim under the large company scheme if they are precluded from the relief available to small and medium sized companies.

Creative Sector

Creative sector tax reliefs are a growing suite of special tax breaks that are being made available. Examples of this include films, animation programmes, high end TV programmes, video games, theatres, orchestras and museum and gallery exhibitions.

There are detailed and differing conditions for each of these potential reliefs. Companies should seriously consider these in order to not miss out on possibly significant tax reliefs.

Further advice

For further advice on any of the topics covered, get in touch with one of our team.

The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice.

The value of investments can go down as well as up and you may not get back the full amount you invested.

Do you need to pay tax on gifts received?

‘Tis the Season for gift giving! But for many influencers, accepting or obtaining gifts from businesses and brands occurs year-round. It can be confusing as to if and what gifts are taxable. To help, we have put together some examples of when gifts would be liable to tax. We’ll also cover those which are regarded as ‘true gifts’ and therefore not taxable.

When is tax due on a gift?

Tax will be due on a gift if it can be considered a non-cash consideration in exchange for goods or services. The most common example will usually be for promotion of the product.

Examples:

  1. A company contracts you to do a number of tweets promoting a product. Instead of paying you in cash they send the product you are promoting (e.g. jewellery to the value of the invoice you would have charged.)
  2. You have been taken to an event. The tickets come with an agreement to promote the performer through a tweet or a video.

True gifts

A gift isn’t taxable when there is no obligation or expectation for you to provide something in return. These are considered to be true gifts.

Examples:

  1. If a brand sends you an unsolicited gift for review and they have no expectation or control over the content being provided.
  2. If a business contact is entertaining you; for example, an agent or a manager takes you out for a nice lunch.

In reality, it’s a case by case basis. A good rule of thumb is asking yourself: “Am I obligated under contract to provide some services in return for this product/service?”.

Find out more

If you would like further advice on the tax implications on giving or receiving gifts, you can get in touch with one of our team.

Start up expenses: What you can and can’t claim

Money’s tight when you’re a start up. The last thing you want is to miss out on reclaiming expenses you incur as you start to build your business.

But while you’re busy assembling a team, working on developing your product or service, marketing your brand and doing all the other things that new business owners need to do worry about, it’s easy to forget about keeping an eye on the finances.

Here’s our roundup of the most common areas where you can (and can’t!) claim expenses for your start up.

The golden rule

Claim only for the expenses that you incur which are wholly, exclusively and necessary during the everyday running of your business.

Capturing all your costs is the key to not missing out. We often see start ups not claiming for expenses that are perfectly legitimate. So, hold on to your receipts, because expense claims for the following are likely to be tax deductible.

Pre-setup costs

It’s easy to assume that you can claim for expenses only after you start your business. In fact, limited companies can claim relevant expenses for up to 7 years before the business begins operations.

Here are some areas where business expenses may be tax deductible:

  • Computers & software: Laptops and tablets can be a grey area for expenses, because their portability means they’re often used at work and at home. If you’re confident that you can justify the expenditure based on a real business need, you should be fine to claim these.
  • Internet and web domain fees
  • Travel costs
  • Professional services: these can include the costs associated with accounting and legal help, such as company formation and the drafting of contracts.

There may be some items that count as business expenses but that are not allowable as tax deductions. Not all business expenses are tax deductible.

Try to maintain an accurate record of pre-formation and running costs, including VAT receipts. Doing so helps you justify your actions should your business expenses claims be queried.

Business insurance expenses

You can claim the cost of your business insurance policies as limited company expenses, so long as they’re used strictly for business purposes. Allowable expenses for business insurances include:

  • Public liability insurance
  • Employers’ liability insurance
  • Professional indemnity insurance
  • Contents insurance
  • Vehicle insurance (if you have company vehicles)

Advertising, marketing and PR expenses

Promoting your start up is an important part of building momentum for your new business. Advertising (online, print and other media), social media campaigns and PR are claimable on your company expenses. These expenses can be for one-off promotions or ongoing costs, so long as the investment relates solely to business purposes.

Travel and accommodation expenses

Travelling and overnight stays put a strain on your time as a business owner, but many of the related expenses can be reclaimed:

  • Accommodation costs for business trips with overnight stays
  • Reasonable food, drink and subsistence costs
  • Business mileage costs

There is an HMRC-approved scheme for claiming mileage. Keeping a mileage log and using this scheme is a quick, easy way to reclaim travel costs. Keep in mind that you have to satisfy the following for your expenses to be valid:

  • You’re responsible for paying the travel costs.
  • The travel is necessary for work purposes and you need to be present at the destination in question for business purposes. This doesn’t include the everyday commute between your home and permanent workplace.

If you use your personal car or van to travel to a temporary place of work and you’ve paid for the fuel out of your own pocket, you can claim the following rates as limited company expenses:

  • Car/van – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter.
  • Motorcycle – 24p per mile
  • Bicycle – 20p per mile

Claiming the above rates doesn’t just lower your total Corporation Tax bill, it also means you can reimburse yourself for the amount claimed.

As well as the mileage rates listed above you can also claim the following as business expenses:

  • Parking costs (but parking fines are not allowable)
  • Road toll fees
  • Congestion charges
  • Hotel rooms (within reason)
  • Food and drink on overnight trips
  • Public transport, including train, bus, air and taxi fares
  • Vehicle Insurance (company vehicles only)
  • Vehicle repairs and servicing (company vehicles only)

Travel doesn’t have to mean long distances. Trips to banks, solicitors and other short but necessary business travel can all be claimed. It may not seem like much, but it all adds up over the course of a year.

Bank charges

Keeping your money safe and handling transactions are necessary parts of doing business. Therefore, bank fees charged to your business accounts can be claimed as valid business expenses. That also includes claims for credit card and loan interest.

Use of home as office

If you run a business from home you’re able to claim a percentage of your household costs and utility bills as business expenses.

The easy approach is to claim a simple rate of £4 per week (£208 per year). Alternatively, you may wish to work out what rooms you use for your business needs and the amount of time they’re used for work purposes.

You’ll also be able to claim back other related costs related to working from home, so long as they’re incurred solely for the purposes of business e.g. lighting, heating, postage and printing.

Gifts, entertainment and trivial benefits

Staff entertainment and staff gifts can be claimed as business expenses. However, there are limits to what can be allowed for tax purposes.

Cash gifts to staff, or gifts that are performance related (such as rewards), are taxable on the employee, whereas flowers for a staff member would be perfectly acceptable.

For staff events and parties, the costs of entertaining your employees can be claimed as a business expense if it’s an annual event open to all staff members and costing less than £150 per person.

Any client entertaining, even if it’s a genuine business expense, is not allowable for tax purposes.

Phone bills

Communication utilities, including phone and broadband access, can be claimed as a limited company expense.

If your mobile phone contract is in your company’s name and it relates solely to business purposes, you can claim the entire bill as a business expense. If it’s a personal contract, you’ll need to separate the business and personal use and then claim for only the business-related expenses. You can also claim limited company expenses for the business calls you’ve made from your home phone line.

HMRC have looked closely at this issue in recent years. If your phone contract is used for both personal and business but you easily identify what the business costs are, you’re advised not to claim any of it.

Equipment expenses

Plant and equipment purchases can be claimed so long as they’re used mainly for business purposes. Examples include computers, company vehicles and furniture.

These costs will likely be treated as capital expenditure and end up as assets on your Balance Sheet rather than your normal expenditure. You’ll get the tax deduction for them in your Corporation tax return, under HMRC’s Capital allowance rules.

Professional development expenses

Personal development and training courses can be claimed as limited company expenses. Any training has to be wholly and exclusively for the purposes of your trade. If in doubt, check eligibility before adding such expenses to your records. 

You’re also allowed to claim expenses for magazine subscriptions, journals and books.

Salary

If your start up is a limited company and you’re a director, it’s normal for you to pay yourself a salary as an employee of your business. That salary and the corresponding National Insurance Contributions (NIC) can be claimed as allowable expenses. Once you reach the National Insurance threshold, you’ll have to start paying NIC.

We encourage you to think about how you’re paying yourself. For example, some business owners take a minimal salary and then use dividends to help with their personal allowance.

Pensions

Thoughts of pensions might be a long way off when you’re just getting rolling with a start up business. But keep in mind that your limited company can pay into your pension scheme. 

As an employer contribution, this would be an allowable tax deduction from the company profits, therefore reducing the tax payable by the company. There are limits on how much money the company can pay into your pension in any one tax year.

Expenses that your start up business can’t claim for

You can’t claim for expenses that have a dual purpose for business and personal use. For example, if you decide to extend a business trip abroad for leisure purposes, you can claim only for the business days.

Here are some general examples of expenses that can’t be claimed for:

  • Home to work journey
  • Most client entertaining
  • Business trips that you extend for personal holiday
  • Anything for personal use

In practice, that hasn’t stopped some businesses trying to claim for expenses that were never going to make it through. Here are some real examples that can’t be claimed for:

  • Trips abroad being claimed as annual AGM costs for their spouse’s company
  • Family meals out being claimed as shareholder meetings
  • Sports season tickets being claimed as “sponsorship”
  • Kids’ bikes being claimed through the cycle to work scheme
  • Petrol receipts being claimed through the business, when the company owns only a diesel vehicle
  • Multiple iPhones/iPads going through the business around December time, despite there being only one director/employee in the company
  • Games consoles described as computers in the client’s cashbooks

Remember to stick with what’s reasonable: only genuine business expenses count. If you’re in doubt about what’s a reasonable expense, do check with your accountant. If there’s a grey area, you might be safest not to claim.

Business expenses may be paid through your company’s bank account, or you can reclaim the costs of business expenses paid by you and later reimbursed via your company.

In summary

There’s a vast array of things that start up businesses can claim for as well as a few things that definitely can’t be claimed for! Most business owners can easily overlook one or more of these areas, so keep this article handy and make sure you’re always holding on to your receipts for your expenditures.

And again, if your expenditure is for something wholly, exclusively and necessary during the everyday running of your business, you can probably claim for it as a business expense.

If you’re in any doubt about what you can or can’t claim, get in touch with one of our team.