A regular query from business owners is company expenses, what can/cannot be claimed, and what can be claimed that they might not know about.
To start, for an expense to be allowable for corporation tax purposes, it must be incurred wholly and exclusively for the purpose of trade.
Meaning the expense must be incurred for the purpose of enabling a person to earn profits of the trade.
This definition is not always clear cut therefore we’ve produced the below to provide some guidance on this grey area.
Problem company expenses
Unpaid pension contributions
Unpaid employers pension contributions at the year- end are not allowable for corporation tax purposes.
Accrued salary and employers’ national insurance
Accrued salary which remains unpaid 9 months after the year end is not allowable for corporation tax purposes. Tax relief is only available in the year the payment is made.
Repairs and renewals
The cost of repairs are usually revenue and allowable for corporation tax.
The same rule applies for the like for like replacement of an item which is a subsidiary part of a larger asset, for example replacing a window.
In the situation where an improvement of the original item has taken place, for example a 2 piece bathroom suite has been upgraded to a 3 piece suite, this is not a revenue repair and should be treated as capital. In this example, the bathroom suite is likely to qualify for capital allowances, so tax relief is still available on the expenditure.
If an asset has been recently purchased and repairs are undertaken to restore the item to a usable condition, these ‘repairs’ will be treated as capital expenditure.
Reasonable staff entertaining is an allowable expense for corporation tax purposes.
Client entertaining is not an allowable expense for corporation tax purposes.
Small donations to local charities are allowable as a trading expense.
Donations to national charities are treated as a charge on income. If the company has taxable profits, a national donation will reduce the taxable profits. However, if the company is in a making loss position, a national donation will not increase the losses.
Legal and professional fees
Legal and professional fees are not allowable if they have been incurred for a capital purpose or non-trading purpose, for example a company reorganisation or architect’s fees for building work.
A list of allowable potential costs you may incur is detailed below:
- Trademark registrations
- Renewing an existing lease (short <50 years)
- Valuation fees for insurance cover/revaluation for accounts
- EMI – running costs
- Finance raising (even for aborted expenditure but not share issue)
- Preparation of normal trade/service agreements
- Debt collection
- Defending title to fixed assets
- Defending exiting trade rights
- Employment advice
- Rates review
- Pension advice
- Building inspection for insurance purposes
- Director’s personal tax fees
- Dilapidations settlements
- Website development if site not used for selling
- Obtaining licences
- Architects fees for repair work
- Health and safety advice
- Reviewing Articles of Association/documents for AGM
- Company name change
Disallowed costs you may incur are as follows:
- Purchase/sale of property
- Taking out a new lease (long or short)
- Renewing an existing lease (long >50 years)
- Taking out options to lease land
- Valuation fees for purchase/sale of property
- Company reorganisation
- Share issue/share transfers etc
- Company purchase of own shares
- EMI set up – grant of options
- Incorporation costs
- Stamp duty
- Due diligence work re potential acquisition/sale
- Architects fees re new building work
- Fees for corporation tax enquiries which lead to amendments
- Structural engineer/building work
- Architects fees for new building work
- Late filing penalty re Companies House
- Planning permission
Parking files for staff who have received a ticket whilst on work duties are allowable for corporation tax purposes. Parking fines for company Directors are not allowable.
Late submission penalties such as for VAT returns, corporation tax returns and the similar are not allowable for corporation tax purposes.