This seems like a simple question. However, particularly at this time of year as they submit their tax return, many people find out that what they thought was a business expenses, isn’t.
The answer to the question is not defined by you, but by the tax office.
Take your telephone bill as an example. The tax office is happy to accept a telephone bill, even a mobile phone bill, as a business expense if you are a limited company, but not if you are self employed. If you are self employed and have a mobile phone, the tax man will assume that the contract is mainly for personal use. To prove your business use you need an itemised phone bill and details of which calls were for business, and which were personal.
Another area that often causes confusion is food and drinks (entertaining). Meals and drinks bought by a limited company can usually be called a business expense, but only very rarely if you are self employed.
If you are unsure about what is or isn’t a business expense, ask a professional, and then make sure that you understand what they tell you. I heard a story recently about someone who thought they knew what was allowed, only to find that their accountant had disallowed some items on their tax return (and not told them).
The logic behind the tax office’s decision on what is (and isn’t) a business expense may be archaic or confusing, but when the tax man knocks on your door and asks to see your accounts, the argument becomes irrelevant, as all that matters is the law.
If you would like to know more, or have questions, please ask.
