Business, Legal & Accounting Glossary
Expenses incurred by a person whilst carrying out duties at work, which are ‘approved’ by the tax authorities and can be offset against income to reduce income tax liability.
Allowable expenses are non-taxable business costs that are necessary for the operation of the business.
Allowable expenses are not included in a company’s taxable profits. As a result, you do not pay tax on these expenses. A company, for example, has a £15,000 annual revenue. Allowable expenses total £2,000 for them. They only pay tax on the balance of £13,000.
There are a few exceptions to the rule that most small businesses can claim allowable expenses. If you use the £1,000 tax-free ‘trading allowance,’ you cannot claim allowable expenses, and limited companies are subject to different rules.
Only certain costs can be claimed as allowable expenses, including:
When claiming allowable expenses, it is critical to distinguish between business costs and personal expenses, as private purchases cannot be claimed as allowable expenses.
If you use company funds to pay for a personal expense, the cost should not be included when calculating your annual allowable expenses.
It’s common for small businesses and freelancers to have expenses that cover both business and personal expenses. Only business costs can be claimed as allowable expenses in these circumstances.
For example, you drive to client meetings, but you also use it to get around outside of work. You spend £200 per month on gasoline. You calculate that you use 25% of your gasoline during work-related trips (not including journeys between home and work). As a result, you can only claim £50 per month as an allowable fuel expense.
Allowable expenses can be claimed on your annual Self Assessment tax return. When submitting your tax return, you are not required to submit proof of your expenses; however, HMRC may request proof of your costs. As a result, it’s critical to keep detailed, accurate records of your expenses throughout the tax year.
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This glossary post was last updated: 11th August, 2022 | 0 Views.