Corporation Expenses That Are Not Tax Deductible
Author: Russell SmithJuly 6, 2015
Get tax advice from our team in Leeds, and discover what corporate expenses you can’t claim as tax deductibles.
In a previous blog, we looked at non-deductible expenses for sole traders. Today, we are going to delve into the world of limited companies and discover what expenses larger corporations can’t claim on either.
Understandably, as limited companies are more complex than a sole-trader business, the list is considerably longer — although there are some similarities. If you operate a limited company and don’t want to be caught out by HMRC for claiming on non-deductible expenses, then be sure to read over our list of cooperation expenses that are not tax deductible.
Unless your business assets are gold, vintage cars or artwork, their value is likely to decrease as time goes on. Be it buildings, vehicles or equipment, loss through depreciation is an unavoidable part of business. Unfortunately, this depreciation is not tax deductible, and perceived losses should not be included on tax returns.
For obvious reasons, money paid out of a limited company to shareholders cannot then be claimed as a business expense. As they contribute to personal financial gain, shareholder dividends should never be classed a deductible expense.
Improvements to Capital Assets
When it comes to capital assets — property — there is an important distinction to be made on what expenses are tax deductible. You are permitted to claim on necessary repairs, for example, structural, plumbing or electrical issues, you cannot, however, claim on renovations. An outdated lobby may need some changes, which may include structural reconfiguration, but this is not deemed necessary by HMRC and therefore, is not a claimable expense. If you want to improve the aesthetics of your property or extend them, you shouldn’t expect any help from the government.
This may likely come as a surprise to some, but client entertainment — dinner, coffee, drinks, — is not deductible as an accounting expense. The argument is that you could have the same conversation over a glass of water in an office, so as an expense, it simply isn’t necessary. You are, however, entitled to claim on expenses for the entertainment of your employees. Costs for the Christmas do, for example, are allowable expenses — don’t look at us, we don’t make the rules.
Offering gifts to customers is a great way of showing appreciation, and can come in many forms: thank you flowers, a product giveaway, a month without payment, etc. These gifts, however, are not permitted as expenses unless they fall under £50. However, there are rules to this exception as well. Food, drink, tobacco and anything that carries an advertisement for your business is excluded as deductible gifts — if you want to give out umbrellas with your branding on, don’t expect any help from HMRC.
Donations are a tax-deductible expense, but they must be made via Gift Aid. As Gift Aid is only offered to registered, government-approved charities, it stops corporations offsetting costs through privately owned ‘non-profit’ organisations. Donations to political parties are also exempt from tax deductions.
Legal fees are one of the more complicated business expenses, as some may be deductible and some may not. Fees incurred by obtaining loans, patents and registering trademarks are deductible, but many others are not. Legal fees relating to the issue of share capital, or matters of capital items — equipment, property, etc — are not deductible. If you are unsure of what category your legal fees fit under, contact us for some legal tax advice from Leeds based expert.
Fines and Penalties
If your business incurs any fines or penalties, be they from HMRC or any other governing body, repayments cannot be claimed as expenses. The simple reasoning behind this is that fines are put in place if rules are broken and, as your company should be following the rules, breaking them is not a necessary part of doing business.