Allowable and disallowable expenses
We cannot simply say ‘I spent X on my business and will therefore claim it back so that my business gets tax relief on that expense’. A most basic test of this would be to ask yourself the question ‘Was it necessary to my business to spend that money?’ If the answer is ‘yes’ then your claim should be legitimate.
Meeting the board in Bali
Imagine a scenario in which you run a tourism business that arranges holidays in Bali. Employees work there and you would like to hold a board meeting over there. If you can say that you are holding the board meeting ‘wholly and exclusively’ – for they are the words within tax law – then it will be tax-deductible.
In essence, if you have to go but really wish you didn’t because it’s just work bookended by two long flights, then you’re ok.
Taking the family along
To take the above scenario a bit further, you might be tempted to say ‘well, if I have to go, I might as well take the family with me.’ In that case, business expenses certainly wouldn’t cover them and you would have to be very careful not to claim anything related to family holiday versus business time.
Plumbing in Bali
If your business has nothing to do with Bali – such as an Oxford-based plumbing business – and you just fancy a trip to Bali then that would be almost impossible to claim.
If there happened to be a plumbing conference in Bali then you could claim for travel to, and attendance at, the conference but no other activities while out there. So cancel all thoughts of the tax-free surfing lessons.
Can I spend big, claim big?
Capital expenditure covers a large purchase of something that will benefit your business for a long time such as equipment, buildings, machinery etc. That purchase is tax-deductible under capital allowances.
A high definition data projector could show great presentations and will help with a lead generation so you will not have any difficulty claiming for that. However, if you want it at your house as a home cinema then don’t even think about claiming, and if you want to use it for business during the week and cinema at the weekend then only claim for the proportion you use for business purposes.
The revenue has a lot of experience in these matters and is skilled at identifying what type of purchases suit certain types of companies. Buying a yacht in the event of flood evacuation from your office building is never simply going to float past an inspector unchallenged.
Wining, dining, and taking the fizz
The most common cause of confusion is around entertaining expenses. Until recently, you could claim for food and drink with a client but because that system became so abused by people basically having a good night out and trying to claim it was tax-deductible, that was stopped.
If you have an all-day meeting and supply sandwiches at lunch then you should be able to claim that as subsistence, but try sneaking a glass of prosecco into that menu and it just won’t get through.