Tax Deductible Expenses

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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
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
Computer software	If bought separately from hardware	Otherwise, capital allowances available
Gifts to customers	Gifts costing up to £50 and bearing the business name	Any item of food, drink or tobacco
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
Telephone bills	Business proportion based on calls	Private element and home line rental
Motor expenses	Business proportion based on mileage	Private element
Travel expenses	Business travel	Travel between home and normal place of business
Subscriptions	Professional subscriptions, relevant magazines and journals	No-business related subscriptions
Wages and salaries	Staff (including family where duties genuinely carried out)	Proprietor’s own drawings and gratuitous wages to family
Bank charges and interest	Charges on business accounts and business related loans	Interest for personal overdrafts and loans
Other interest	Interest on business loans	Interest on income tax paid late and interest paid to proprietors
Insurance	Business related policies	Life assurance, self-employed NI, health and sickness insurance
Bad debts	Specific bad debts from business transactions	General provisions and debts written off voluntarily
Accountancy fees	Normal business related fees	Costs of unsuccessfully defending an HM Revenue & Custom investigation
Legal fees	Most business related advice	Partnership agreements, company formation, property acquisition and renewing long leases
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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