Non-Tax-Deductible Expenses 2019: Corporate Purchases You Cannot Claim
Author: Russell SmithFebruary 6, 2018
– Updated from 2018
Confused about what expenses you can and cannot claim on? Let our UK chartered accountants explain the rules set out by HMRC.
Are you a business owner or financial manager of a limited company? Then you’ll be familiar with the concept of tax-deductible expenses. At Russell Smith Chartered Accountants, we certainly are. The problem is, not all expenses are tax-deductible and, unfortunately, we’ve seen many businesses struck with problems resulting from trying to claim on the unclaimable.
Working as a self-employed sole trader, not running a limited company? There are non-tax-deductible expenses for you as well. Read all about them here.
If you’re worried about whether or not you are claiming for the right expenses, or are just interested to know so you can avoid mishaps, this blog contains exactly what you need to know.
What is a Non-Tax-Deductible Expense?
A deductible tax expense is a purchase deemed necessary, and ordinary, for business operation. These can be claimed to reduce your tax bill. A non-tax-deductible expense is a purchase that does not facilitate the normal operation of your business and cannot be used to offset tax costs.
Often, it is obvious which expenses are deductible, and which aren’t. However, the line is not always so black and white. Many business owners, especially newcomers to the world of corporate management, experience some confusion over what they cannot claim.
If claiming tax deductions is something you struggle with, it may be better to be safe than sorry. Eliminate the risk of mistakes and financial errors by getting help from our team of chartered accountants today.
8 Non-Tax-Deductible Expenses to Avoid Including in Your Returns
Avoiding non-tax-deductible expenses, and staying on the right side of government guidelines is simple. All you have to do is know what you cannot claim on. Below, our UK chartered accountants have compiled a list of eight commonly claimed for expenses that are actually not tax deductible:
1. Asset Depreciation
Unless your business assets are gold, vintage cars or artwork, their value is likely to decrease as time goes on. From buildings and vehicles to equipment and technology, loss through depreciation is an unavoidable part of a business. Unfortunately, this depreciation is not a tax-deductible expense, and perceived losses should not be included on tax returns.
2. Shareholder Dividends
Money paid out of a limited company to shareholders cannot then be claimed as a business expense. These payments contribute to personal financial gain, which means shareholder dividends should never be classed a deductible expense.
3. Improvements to Capital Assets
When it comes to capital assets — such as 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 payments such as renovations. An outdated lobby may be desperately needed for branding purposes, which may include structural reconfiguration, but this is not deemed necessary for operation by HMRC. Therefore, it becomes a non-tax-deductible expense.
4. Client Entertainment
This may likely come as a surprise to some, but client entertainment, such as dinner, coffee and 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!
5. Customer Gifts
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. Still, these gifts 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 are completely excluded.
Donations are a tax-deductible expense, but only if they are contributed 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 non-tax-deductible expenses.
7. Legal Fees
Legal fees are one of the more complicated business expenses, as some are deductible and some are 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 non-tax-deductible expenses. If you are unsure of what category your legal fees fall under, contact Russell Smith Chartered Accountants now for guidance and support.
8. 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.
Having trouble filing your tax returns or understanding non-tax-deductible expenses? Our chartered accountants are finance specialists, capable of supporting all your business requirements. Get in touch today and let us know how we can help you.
Russell Smith is an award-winning accountant and founder of RS Accountancy. With over a decade of experience running his company, he has worked with countless small businesses just like yours, helping them grow profits and manage their finances. Russell is also a prolific financial writer, having contributed to such publications as The Guardian, The Telegraph and The Daily Mail.