Many business owners ask us for guidance on what can be expensed, what the limits are and what categories these expenses should go into. We have rounded up the most common expenses and created this guide to help you navigate the uncertainties that you may face when submitting expenses.

The main point is to ensure that an expense is used only for your business in order for it to be tax deductible. Personal expenses will not qualify, and any mixed-use expenses need to be recorded appropriately.

The most common expense categories are:

Travel and Subsistence

Business travel is deductible, this includes mileage, train fares, flights, taxis and parking. Subsistence will cover meals and refreshments when you are traveling for work and if you are away from your usual place of business.

If you were to invite remote workers or contractors to a workday / similar category, which includes lunch and other working expenses, this would be better categorised as a business meeting/operational cost rather than staff entertainment as this is a working day with a clear business agenda.

Client Entertainment

Any meal, drinks, coffee or hospitality that is taken with a client or prospective client will be coded as client entertainment. Your business can put the costs through as they appear in your financial statements. It is important to note that they are non-tax deductible and are added back when preparing your corporation tax return.

It is also worth noting that VAT on client entertainment is non recoverable.

Staff Entertainment

Hospitality for your own PAYE employees is categorised separately. The annual allowance is £150 per person for staff entertainment, such as a Christmas party. This is tax free and each employee can bring a partner or guest, however, the £150 will need to cover them both. Anything over £150 will become a taxable benefit.

Gifts to clients

Gifts given to clients under £50 per person are tax deductible with no additional benefit-in-kind implications. We recommend that you keep gifts under the threshold per recipient. If you were to bulk buy that is allowed. The total invoice amount will not be an issue; it comes down to the cost per recipient. It will need to be noted on the invoice, how many people the gift covers.

Gifts over £50 per person are treated similarly to client entertainment, i.e. not tax deductible, but the business can still pay for them. It is worth noting that gifts of food, drink, tobacco, or vouchers exchangeable for cash are never deductible.

For a higher value gift, there are no additional complications as long as the recipient is not on your PAYE payroll.

Gifts to Consultants (Non-Employees)

Your consultant/ freelance team are not PAYE employees. Gifts made to them through the business are generally tax deductible, provided the expenditure is wholly and exclusively for the purposes of the trade – which a genuine business gesture to a working consultant typically will be.

Note that the £50 per-recipient threshold is a rule specific to client gifts. It does not apply here, so there is no hard limit on deductibility for consultant gifts in the same way.

Any personal tax implications for the recipient remains their own responsibility.

Gifts to PAYE Employees

If you would like to give a gift to a PAYE employee, please note that anything under £50 will qualify as a trivial benefit, is tax deductible for the Company and has no benefit-in-kind implications.

A gift over £50 will become a taxable benefit in kind, and the benefit in kind would need to be processed through payroll/ or via a P11D. We recommend putting higher-value rewards through their pay, such as a bonus, so that tax is managed correctly.

Trivial Benefits

A useful rule to note for small gift gestures, such as birthday gifts and thank you tokens:

• A gift or benefit under £50 which is not cash and not a reward for performance qualifies as a trivial benefit.

• Tax-free no reporting requirement, no benefit-in-kind

• Keep individual purchases under £50 and retain receipts.
• There is a £300 annual limit per tax year for Directors of ‘close companies’ (your company qualifies as a close company), but no limit for employees.

Day-to-Day Subsistence & Expenses

While these are already understood, it is always useful to note that:

• Meals and coffees bought when travelling away from your normal place of work should be categorised as subsistence and is tax deductible.

• Car mileage can be claimed at HMRC approved rates, please keep detailed records and we can record any mileage claims in your accounts.

• The approved HMRC mileage rates (currently 45p per mile for the first 10,000 miles, 25p thereafter for cars).

The do’s of business expenses

• Keep all receipts and invoices, HMRC can request evidence of any expense, and it helps us as your accountants to have these on hand when working on your returns. We recommend taking a photo of them straight away and filing them as soon as you can so that they can easily be sent over to us or so that you have them all in one place when you are submitting your return
• Ensure that your business and personal finances are kept separate. This saves time when it comes to bookkeeping
• Do keep all tax obligations separate. VAT, corporation tax and PAYE are for HMRC, not your business. Set each aside separately as they come up.
• Do talk to us before making any large purchases or if you have any questions and queries related to purchases and expenses. The timing of your purchases can make a difference to your tax position.
• Do ensure that you are up to date on your bookkeeping, or if we act as your accountant, ensure that you send us all expenses, invoices etc throughout the year.

The don’ts of expenses

• Do not put your personal expenses through the business. This can be seen as fraud if it reduces your tax bill.
• Do not forget to apportion mixed-use costs accordingly. For example, if your phone is both used for personal and business-related matters, only the business proportion can be claimed.
• Don’t forget about the director’s loan rules. If you take money from your company beyond your salary and declared dividends, it may be treated as a director’s loan and may trigger a tax charge if you do not pay it in the appropriate time frame.

Expenses and how to categorise them can seem intimidating, but if you break it up into small pieces, it is a manageable admin task. Here at PennyBooks, we are always on hand to help. If you have any questions or need further guidance on expenses, send us an email at support@pennybooks.io.

Sarah Morris