Expenses are an unavoidable part of running a business. If you’re new to company ownership, you may be unsure what does and doesn’t constitute a business expense, and the best way to handle them. Hopefully, this brief guide will help you.
What is a business expense?
From a tax point of view, anything which benefits your business in terms of profit is an expense. This includes things like travelling to a client’s home from the office, or printing costs if you need to advertise in the local paper. This type of expense is tax-deductible, so you can disregard it from your total profits when declaring them to the tax man. Other costs, such as staff lunches or certain equipment, may not be tax-deductible but will still need to be monitored if your cashflow is to remain healthy.
Travel to and from work is not a tax deductible expense, unless the employee has to travel to a place of work they don’t usually go to. Travelling to and from places on company business is deductible, and you can claim 40p per mile if using your own car.
If you or your staff need to stay overnight in a hotel for business purposes, then you could claim this as a tax deductible expense – provided the costs are reasonable. Food, drink and accommodation are reasonable, claiming for a pub crawl around the local town is not. If it’s a place your company will use often, set up an account with the accommodation and have them send the bill directly to you.
How to keep track of expenses
The vital part of managing your expenses is to record everything. Receipts and invoices should all be kept, and ideally your costs should be tallied at the end of each working day so you know at a glance what you have spent. If you allow your employees to claim expenses, use claim forms which can then be filed alongside invoices. Business credit cards can make it somewhat easier than using expense claim forms, as the figures are all there on the statement, but you should only allow trusted staff to use these.
Keeping comprehensive records of all expenses (and any benefits your employees are given) is crucial as you will need them at the end of the tax year when filling in your P11D or P9D forms.
You may have your own ideas about the best way to record your daily expenses, but if not, you can’t go wrong with an Excel spreadsheet. You could either use a blank worksheet and build up from there, or search on the internet for a template – the Microsoft Office website holds many user-created templates for you to download and start using straight away. Excel allows you to set up calculation formulae which will keep a running total for you, making it much easier to see how your cashflow is doing on a daily, weekly or monthly basis.
It’s imperative that you have a separate bank account for any company money. Look for a bank which doesn’t charge high fees for business banking, and it’s a good idea to get an account with an optional overdraft in case of dire emergency. If you anticipate your expenses to be of a sizeable amount, you may wish to get a separate account for these, as a ‘petty cash’ account. It’s also a good idea to have an account with online facilities, which will make monitoring your expenses much easier.
Louise Tillotson is a financial author with Moneysupermarket, and has written a number of guides on finance in all areas from business to travel