How to classify business expenses
How to categorise and claim expenses costs as allowable expenses or capital allowances to get the most tax benefits.
Understanding the categories of allowable expenses and capital allowances is important for effective financial management.
Allowable expenses cover many operational costs, such as office supplies, travel, and staff salaries. You can use capital allowances for significant purchases. These include equipment and vehicles used in your business. Categorise and claim these costs to get the most tax benefits.
If you work from home specific rules apply.
Costs you can claim as allowable expenses
These include:
- office costs, eg stationery or phone bills
- travel costs, eg fuel, parking, train or bus fares
- clothing expenses, eg uniforms
- staff costs, eg salaries or subcontractor costs
- things you buy to sell on, eg stock or raw materials
- financial costs, eg insurance or bank charges
- costs of your business premises, eg heating, lighting, business rates
- advertising or marketing, eg website costs
Contact the if you're not sure whether a business cost is an allowable expense.
Costs you can claim as capital allowances
If you use , claim capital allowances when you buy something you keep to use in your business, for example:
- equipment
- machinery
- business vehicles, eg cars, vans, lorries
If you use cash basis
If you use and buy a car for your business, you can claim this as a capital allowance. However, all other items you buy and keep for your business should be claimed as allowable expenses in the normal way.
If you use something for both business and personal reasons
You can only claim allowable expenses for the business costs. For example, your mobile phone bills for the year total 拢200. Of this, you spend 拢130 on personal calls and 拢70 on business. You can claim for 拢70 of business expenses.
If you work from home
You may be able to claim a proportion of your costs for things like:
- heating
- electricity
- rates
- mortgage interest or rent
- internet and telephone use
You'll need to find a reasonable method of dividing your costs. For example, you could do it by the number of rooms you use for business or the amount of time you work from home.
Simplified expenses
You can avoid using complex calculations to work out your business expenses by using . Simplified expenses are flat rates that can be used for:
- vehicles
- working from home
- living on your business premises