There is often some misunderstanding about which items of business expenditure are deductible against profits for tax purposes, and which are not. The following list covers the items most commonly requiring explanation. The list is written in general terms, so specific advice should always be taken.
| Item | Deductible Against Profits | Not Deductible |
Normal business expenses generally | Expenditure incurred wholly and exclusively in the course of business | Personal expenditure and all entertaining except staff |
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Capital items (i.e. items expected to be used for more than 2 years) | An annual capital allowance is available on most items of equipment | Freeholds and long leaseholds of most non-industrial premises |
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Computer software | If bought separately from hardware | Otherwise, capital allowances available |
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Gifts to customers | Gifts costing up to £50 and bearing the business name | Any item of food, drink or tobacco |
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Home expenses | Reasonable proportion of home running expenses, depending on he extent of use of home for business | Domestic expenses not related to the business |
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Telephone bills | Business proportion based on calls | Private element and home line rental |
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Motor expenses | Business proportion based on mileage | Private element |
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Travel expenses | Business travel | Travel between home and normal place of business |
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Subscriptions | Professional subscriptions, relevant magazines and journals | No-business related subscriptions |
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Wages and salaries | Staff (including family where duties genuinely carried out) | Proprietor’s own drawings and gratuitous wages to family |
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Bank charges and interest | Charges on business accounts and business related loans | Interest for personal overdrafts and loans |
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Other interest | Interest on business loans | Interest on income tax paid late and interest paid to proprietors |
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Insurance | Business related policies | Life assurance, self-employed NI, health and sickness insurance |
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Bad debts | Specific bad debts from business transactions | General provisions and debts written off voluntarily |
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Accountancy fees | Normal business related fees | Costs of unsuccessfully defending an HM Revenue & Custom investigation |
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Legal fees | Most business related advice | Partnership agreements, company formation, property acquisition and renewing long leases |
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Personal expenditure | Modest subsistence expenses in certain cases when working away | Lunches, private expenses and bills, gifts, clothing (unless a uniform) |
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