Properly claiming business costs is essential for small businesses. Nobody enjoys paying taxes, but paying them on your gross income instead of your net profit is just wasteful and can seriously hurt your competitive prospects and the viability of your business. Unfortunately, the flip side is that small businesses and self-employed individuals can sometimes get a bit over-enthusiastic when it comes to claiming business costs.
In order to make sure that you stay on the right side of the law, here are five basic rules that will help you make sure that you don't get into trouble during next tax season.
Is the cost completely and exclusively for the business?
Many self-employed individuals hope to write off their utility bills and other expenses related to running a small home office, but unless the cost is entirely for the business, it's easy to run into trouble.
Is there any personal amount in the cost?
For example, For those of you who do run a home office and want to claim some part of the utilities as a business cost, you'll have to calculate just how much of the cost is personal and how much is purely business. This way, you'll be able to claim a portion of your bills without any issue.
Would the cost still exist if you didn't run your business?
If you're trying to claim business costs for meals, travel expenses or other related items, stop to ask yourself if you'd have spent money on these things if you didn't have your business. This will usually make it quite clear whether or not you can safely claim something as a business cost.
Have you followed HMRC procedures for record-keeping?
It's one thing to claim a business cost, but even a legitimate business cost needs to be documented so that you can prove that legitimacy. Make sure that you keep a copy of all documentation and calculations related to any business costs you claim.
The Crucial Rule: Inspection Justifications
Perhaps the simplest and most certain way to ensure that you're following the rules properly is to ask yourself a single question: "Would I be able to justify this business cost claim to an HMRC Inspector?" No matter what you answer to that question, you'll know immediately whether or not you should be claiming it. If you're not certain, you can always ask us for advice!
In order to make sure that you stay on the right side of the law, here are five basic rules that will help you make sure that you don't get into trouble during next tax season.
Is the cost completely and exclusively for the business?
Many self-employed individuals hope to write off their utility bills and other expenses related to running a small home office, but unless the cost is entirely for the business, it's easy to run into trouble.
Is there any personal amount in the cost?
For example, For those of you who do run a home office and want to claim some part of the utilities as a business cost, you'll have to calculate just how much of the cost is personal and how much is purely business. This way, you'll be able to claim a portion of your bills without any issue.
Would the cost still exist if you didn't run your business?
If you're trying to claim business costs for meals, travel expenses or other related items, stop to ask yourself if you'd have spent money on these things if you didn't have your business. This will usually make it quite clear whether or not you can safely claim something as a business cost.
Have you followed HMRC procedures for record-keeping?
It's one thing to claim a business cost, but even a legitimate business cost needs to be documented so that you can prove that legitimacy. Make sure that you keep a copy of all documentation and calculations related to any business costs you claim.
The Crucial Rule: Inspection Justifications
Perhaps the simplest and most certain way to ensure that you're following the rules properly is to ask yourself a single question: "Would I be able to justify this business cost claim to an HMRC Inspector?" No matter what you answer to that question, you'll know immediately whether or not you should be claiming it. If you're not certain, you can always ask us for advice!
Talk to us today to see how we can help you and your business.
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