Mistakes to Avoid With Your Business Expenses

Posted May 29, 2018

Within a small business, the likelihood of you being able to have an in-depth knowledge of every aspect of how the business should operate is highly unlikely. While it is better to be average at everything, instead of amazing at one thing and terrible at another, some things are not worth taking the risk with. Making mistakes can be costly, and for a small business who is operating on tight margins, these are somethings that should be avoided at all costs.

When it comes to accountancy for a small business, this is an area where mistakes can have detrimental effects. The best way to avoid any mistakes is by using small business accountants, such as ourselves here at 3 Wise Bears, but you still need to know about issues that surround some of these mistakes. In our latest blog, we cover which mistakes you need to avoid when sorting out expenses for your small business.

What mistakes can you make with expenses?

Rules are more often than not a complicated list of things that you must abide by, but when you aren’t from a finance background or understand why these rules are in place, it can make sticking to them very difficult. The same things apply to expenses, as there is a bit of a blurred line between what you can and cannot do. Rules can be misinterpreted. One instance of this is travel expenses. You can claim for travel expenses which are incurred whilst you are actively doing your job (such as traveling to client meetings), however, you cannot claim for the cost of your travel to and from your permanent place of work, as it is deemed as not being during the course of the working day.

An expense that can be claimed by a small business, which can cause confusion is whether you are ‘entertaining’ a customer or not. Whether you are taking a customer or client out for lunch or dinner, anything purchased under this time can be expensed. However, if you simply pop to your closest restaurant with your colleagues for lunch, then this cannot be expensed through your small business.

The reason why all of this is vitally important is because expenses are counted as non-taxable, being classed as an allowable business expense as you are carrying out your duties of employment. HMRC will question regular daily expenses, picking up on any trends within a businesses expenses.

Important rules to follow with expenses

An allowable business expense must always be incurred wholly and exclusively through carrying out your businesses duties and fulfilling your employment needs. Employees of a business each have the same treatment in the vast majority of expenses claims.

What you should always do when filing an expense is to stop and think, and consider whether the expense was definitely incurred as part of your role in the business. If there are any questions or hesitations about the expense not being totally 100% necessary for the business, the HMRC would argue a ‘duality of purpose’. This means they believe the expense has been incurred for more than one reason, thus making it not wholly allowable, which means they are likely to could expensed costs and only partially allowable. While you may decide to try and bend the rules, it is well worth noting that it is really not worth being at the tail end of a large fine simply based on a baguette and bus journey.

Costs you can claim as allowable expenses

While we have covered travel costs and ‘entertaining’ expenses, there are a range of other things within a business that can be claimed at allowable expenses. First of all, staff costs such as salaries and subcontractor costs can be claimed, as well as any financial costs such as insurance. Advertising and marketing through things such as websites, adverts and SEO can also be claimed under the allowable expenses bracket. Then business essentials such as maintaining the business premises (heating, water, electricity), office costs (stationery, office equipment) and clothing expenses (workplace uniform) can all be considered as an allowable expense.

For companies using traditional methods of accounting, capital allowances can be made for equipment, machinery, and business vehicles, as long as they are bought as something you keep to use in the business itself.

Accounting solutions for small businesses with Xero

Here at 3 Wise Bears we offer an amazing accounting solution for small businesses, with the support of Xero. As well as assisting with various elements of your business such as payroll and easy invoicing, Xero allows you to sort out all invoices through a simple mobile app. It allows you to record and claim expenses online or snap receipts on the go, making it easy to manage claims, reimbursements, and on-charging.