Running your own business can be a minefield of legal jargon and policies and procedures that you need to adhere to. This is particularly true when it comes to your business finances and working with HMRC. HMRC is essentially the government body that is responsible for collecting tax directly from an employee’s wages as well as from businesses and those individuals that are self employed. They are also responsible for creating the rules and legislation surrounding business expenses and those items that can and can’t be claimed for.
There are essentially two types of expenses when it comes to business – capital expenses and revenue expenses. Capital expenses are those that relate to items inside your business such as office furniture and computers. These become assets of a business and in the dissolution of a business these items can be sold to recover money to pay to any suppliers and they are also subject to depreciation over their given life span. This means that each year their value decreases proportionally based on how many years you can reasonably expect the individual item to last. Revenue expenses are those items that you would not class as assets of the business such as stationery, travel expenses and rent for a business premises. Revenue expenses are usually the ones that people struggle to know what is allowed to be claimed as a genuine business cost and those which are not.
Expenses must be wholly and exclusively spent on the business and in the case of those individuals that are self employed and perhaps work from home, this can be a grey area. For example of you use the same internet connection at home for work and pleasure you can only charge the portion of time that you are working to the business expenses. If you are unsure what you can claim there is a very handy help guide on the HMRC website.
Sole traders are able to use flat rate expenses. In order to ensure that you are charging expenses that are within the boundaries of your industry it is best to consult with a Cheltenham Accountants such as https://www.randall-payne.co.uk/. They can also help you to record your expenses correctly so that you can produce any documentation needed by HMRC if they query your accounts or require further information on any of the items that you are declaring as business expenses.