Managing business expenses is an important part of making a company as tax efficient as possible. Having a practical approach to expense management, by incorporating relevant apps and software, allows for streamlined, accurate and efficient tracking.

Introduction to business expenses

Allowable expenses are costs ‘incurred wholly, exclusively, and necessarily in the running of a business’. These expenses can be deducted from a company’s revenue to calculate its taxable profit. For an expense to be allowable, it must be incurred in the direct course of the business operations. Typical categories would include travel costs, uniforms, training courses, etc. Allowable expenses are deducted in the year they are incurred, providing immediate tax relief.

Two examples of expenses with more complicated rules are below:

Gifts, entertainment and trivial benefits

You won’t need to pay tax and National Insurance, or let HMRC know about a benefit or gift for your employee (known as a trivial benefit) if the following rules apply:
• It’s not set out in the terms of their contract
• It’s not a reward for their performance or work
• It isn’t cash or a cash voucher
• It cost you £50 or less to provide
If you offer employees benefits or gifts that don’t match ALL of the rules above, then you’ll need to pay tax on them.

Travel expenses

Travel expenses can be claimed as limited company expenses if:
• You’re responsible for paying the travel costs
• The travel is necessary for work and you need to be present at the destination in question for business purposes. (This does not include the everyday commute between your house and permanent workplace.)

If you use your personal car or van to travel to a temporary place of work, and you’ve paid for the fuel out of your own pocket, you can claim the following rates as limited company expenses:
• Car and vans – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter
• Electric cars – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter
• Motorcyclists – 24p per mile
• Bicycle – 20p per mile
Claiming the above rates means you can reimburse yourself for the amount claimed and lower your total Corporation Tax bill.

Effective tracking and management of expenses

Digital tools can simplify tracking expenses digitally, reducing human error. They provide immediate access to real-time financial data, enabling an agile approach to decision making and planning.

Implement expense management software: Choose options that integrate with existing accounting systems, and feature categorisation and the ability to scan receipts. This will ensure every transaction is accurately logged and classified.

Regularly review expenses: Monthly or quarterly reviews will help to identify any discrepancies and provide insights into spending patterns, helping businesses to budget more effectively.

Educate your team: Provide staff with clear guidelines on how to report expenses, what is allowable and what documentation they need to submit. This should reduce errors and reduce the risk of compliance issues.

Retain receipts: Maintaining a comprehensive record of all expense receipts and invoices (either physical or digital) is crucial, especially in the event of an audit.

Compliance with HMRC guidelines

Online accounting software simplifies compliance with HMRC regulations by streamlining the process of recording transactions, generating reports and preparing for tax submissions. Remember, you need to keep accurate records and receipts of all business expenses for six years, and it’s wise to stay informed of any changes in tax legislation so you can stay compliant.

With a proactive approach to expense management, owners can support the growth and profitability of their business.

Need assistance with tracking and managing expenses? Please contact us at info@thomsoncooper.com for support with your expenses and streamlining your expenses processes.