Business expenses: a guide for small businesses

Managing your finances effectively is crucial for the growth and survival of a business.

However, business expenses can often cause confusion for small business owners and getting them wrong can have severe consequences.

Understanding what counts as a deductible business expense can help you maintain accurate financial records and minimise your tax liability.

In this blog, we explain the complex world of business expenses.

What are business expenses?

Business expenses are costs incurred in the running of your business. They are liable for tax relief because they directly promote the growth of your enterprise and are utilised solely for business purposes, as opposed to personal gain.

These can range from office rent and employee salaries to the less obvious expenses, like business-related travel or software subscriptions.

The main thing that separates business expenses from your personal expenses is that they must be ‘wholly and exclusively’ for the purposes of your business’ success.

Why is tracking business expenses so important?

Keeping track of your business expenses can provide opportunities to reduce your tax burden.

Every legitimate expense you incur reduces your taxable profit, ultimately leading to lower taxes.

Moreover, accurate record-keeping is essential for compliance and can help you avoid complications if you’re ever audited. This might include retaining invoices and receipts for future claims.

A qualified accountant can help you manage and track your business expenses, relieving the pressure from you, so you can focus on running your business’ day-to-day activities.

What counts as a deductible business expense?

Business owners commonly claim business expenses that might include:

• Office costs: Rent, utility bills, office supplies, and furniture. If you work from home, you can only claim the costs that relate to your business operations.
• Travel and accommodation: Business-related travel costs, including fuel, train tickets, flights, and hotel stays. Meals during business trips are usually deductible within reason.
• Staff costs: Salaries, pension contributions, and benefits are deductible expenses. Wages paid to yourself as the business owner are not.
• Marketing and sales: Costs associated with advertising, PR, and sales.
• Professional services: Fees paid for legal advice, consultancy – and even accountancy services.
• Training: Courses and training programmes that enhance your skills for the business.
• Technology costs: Software subscriptions, website hosting, and hardware like computers or tablets used solely for business purposes.

Personal expenses, fines for breaking the law, client entertainment costs, and repayment of loans are generally not deductible.

The rules around business expenses can be complex, and claiming expenses incorrectly can lead to serious trouble.

Properly documenting your business expenses are crucial for the financial health of your small business, keeping you compliant with tax regulations and maximising your profitability by lowering your taxable income.

If you’re unsure about what qualifies as a deductible business expense, consult one of our professional accountants.

Our experts are here to help you navigate the labyrinth of rules and ensure you’re making the most financially savvy choices for your business. Get in touch today for more information.