Home Business NewsBusinessHow to claim your holiday, golf lessons, school fees and entertainment against your business

How to claim your holiday, golf lessons, school fees and entertainment against your business

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26th Oct 17 2:10 pm

Good to know

No Londoner wants to pay more tax than they need to, but sole traders and directors of limited companies commonly pay unnecessarily high tax because they simply donโ€˜t realise the extent of expenses that they can claim against their income.

According to HMRC, expenses that are incurred โ€œwholly and exclusivelyโ€ for the purpose of your business can be claimed against your income. So the first point is to find out which expenses you have incurred; for example, rent and rates for your business office, telephone, computer software, business travel, staff wages, marketing costs, insurance. All the usual expenses that you would expect a business to incur.

Then there are โ€œother expensesโ€ that could possibly be claimed but have a personal element to them as well, such as holidays, entertainment and leisure. In tax there is a confusion over what โ€œwholly and exclusivelyโ€ means, and what the purpose of the expenses was. So, letโ€˜s look at some expenses that, if done correctly, you can claim but if youโ€™re not careful, you wonโ€˜t be able to claim at all.

Entertainment i.e. drink, food etc.:

This is an area of expenses that the tax authorities donโ€™t allow you to claim against in general, but where you meet certain conditions, you can.

Staff entertainment: You are allowed to claim ยฃ150 a year per head for entertainment. Even if itโ€™s just yourself, as director of a limited company, you can still claim this expense against your income. Because you (the director) are classed as an employee.

Contractual obligation: Where itโ€™s part of your business to entertain, say if youโ€™re providing a training course to businesses and you entertain them as part of the course โ€“ maybe providing tea, coffee, lunch and so on โ€“ even if itโ€™s food, youโ€™re still allowed to claim that because youโ€™re under a contractual obligation to give them food.

Quid pro quo: Letโ€™s say youโ€™re a freelance journalist and you want to speak to say Andy, a man who has world of experience on a topic youโ€™re writing about. You offer to take Andy out to lunch in exchange for his insight into the topic which youโ€™re researching. Because Andy is coming to the table with something of value but not benefitting from it apart from getting free lunch, youโ€™re actually allowed to claim the expense, even though it appears as entertainment.

Holidays:

Holidays are another expense that most people donโ€™t expect to be able to claim against but, again, if done correctly, you can. This is an area where thereโ€™s a lot of confusion but let me give you three common scenarios:

1) Extending a business trip:

You need to go on a business trip to, letโ€™s say, Las Vegas, and since youโ€™re going there you decide to spend an extra day or two to do some shopping or sightseeing. Thereโ€™s a great myth that because youโ€™ve mixed business with pleasure, you canโ€™t claim any of the trip expenses because now the trip has โ€œdual purposeโ€ and according to tax laws, you canโ€™t make a claim for such a trip.

But thatโ€™s not applicable if the primary purpose of the trip is business, thatโ€™s the key thing. But the only amount that you canโ€™t claim against is the extra cost of staying in Vegas a bit longer. If you spend ยฃ1000 on the business trip and then the extra cost is ยฃ200, you can then pay the company back ยฃ200 and still claim the ยฃ1000 against its income,

because the primary purpose of the trip was for business. Make sure you keep proper records, notes and also board minutes to document the main reason for the trip.

Also, if you decide to bring your spouse but theyโ€™re not a business partner or employee, then all you have to do is separate the cost; your spouseโ€™s flights will be disallowed but your flight will be allowed and so on. So, simply put, as long as the primary purpose of the trip is business, you can claim against any cost in relation to that. Other non-business related cost will be disallowed.

2) Mixing pleasure with business:

Letโ€™s say youโ€™re on a business trip somewhere nice and decide to go to the beach, without incurring additional cost. That doesnโ€™t mean youโ€™ve ruined the chance of claiming the cost of the trip against your income, itโ€™s just another myth. But because the original purpose of the trip was for business, you can still claim the whole amount through the company.

All you have to do is keep receipts for everything that youโ€™re meant to be doing on the business trip and claim that against your income, your little fun on the beach doesnโ€™t matter. Why because there is no additional cost and itโ€™s just an incidental benefit from the main business purpose.

3) Turning holiday into a business trip:

This is the only time where you absolutely cannot claim expenses against your income. When you go on holiday and the purpose of the trip is personal but then you decide to do some business while over there, youโ€™ve waived your right to claim any expenses. Because the purpose of the trip was personal, you canโ€™t claim any of the cost incurred while doing business.

A few other areas that might surprise you:

School fees, care home fees, staff holidays, and even golfing lessons โ€“ can be claimed as a business expense in certain circumstances if you run your business through a limited company rather than sole trader or partnership.

If you provide your employees with vouchers that they can exchange for a holiday, HMRC allows you to claim against that, as long as you report this cost as a benefit to your staff. So as director, you can have your company pay for your holiday, the company reports this as a benefit โ€“ much like company car or medical benefits โ€“ then pays Class 1 National Insurance on the cost and you as an employee pay tax on it, either 20 or 40 percent.

Then, the company can claim the cost of this benefit against its income. Is it worth it? Yes, because the crucial point is that the company would have to pay higher tax on the holiday cost if it went through the payroll, so this way you can keep the salary cost down. This goes for school fees or care home fees too or leisure such as golf club fees, gym membership and so on.

There is a helpful guide on HMRCโ€™s site under their expenses and benefits section on this so if youโ€™re not using a tax adviser or an accountant, you might find it useful.

So my advice is to look carefully into any cost of your business, whether youโ€™re a sole trader or director of a limited company, because even the least likely cost might be claimed against, as long as itโ€™s done correctly or you seek advice. And make sure you get the paperwork and evidence right. Otherwise, you might be paying more tax than you have to, allowing your business to bleed money that it perhaps canโ€™t afford.

About the author

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who has advised many clients over the last decade on tax deductible expenses. Jonathan is the founder and CEO of The Tax Guys. He is also the co-founder of Easy Tax Returns (a tax return app to help tax payers avoid stress, penalties and find their peace).

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