Running a business almost always incurs some sort of cost, no matter what you do. Fortunately, you can reclaim many of these as an allowable expense. This means that your expenses are offset against the business’s income on your tax return.
Including your expenses like this gives a more accurate profit figure, which is important because businesses pay tax on profit, not on income.
But do business owners actually know what they can claim? Research suggests not, so you might be missing out.
One in ten London businesses unsure what qualifies as an allowable business expense
In our survey of 484 London-based small business owners, just over one in ten admitted to not fully understanding what counts as a legitimate expense. Just over half (54%) said they need to check online to make sure their claim is allowed.
This leaves just 18% confident that they fully understand what expenses they can legitimately claim.
The cost of unclaimed expenses for London SMEs
Two-thirds of business owners (64%) say they have failed to submit claims for business expenses, with some of these claims coming to more than £10,000 in allowable expenses.
When all small London businesses are considered, there are potentially £925 million worth of expenses going unaccounted for. Missing out on claiming these expenses can have significant consequences for the ongoing profitability of a business.
What is stopping London SMEs claiming expenses?
Over a quarter (27%) of small business owners in London say they don’t claim business expenses due to lost receipts and invoices. A further quarter (28%) could not be bothered or didn’t have time to claim expenses, despite the benefits this would have for their business.
And it’s not just good for claiming back the cash. Recording your expenses properly also help you to understand how well your business is performing. For instance, if sales are high, knowing what your expenses are (and how you incur them) can make sure your profits are as healthy as possible.
Which business expenses cause the most confusion?
Nearly half (47%) of the London small firms surveyed said that they don’t include work clothing when accounting for business expenses. Like all claims, the cost must relate wholly to business use, but clothing can be a tricky subject to navigate.
For instance, a personal trainer must be able to demonstrate that their work clothing is only used during client training sessions, and not for personal work outs. It’s not easy to do!
Surprisingly, a quarter (24%) of London employers don’t include staff wages as an expense, despite this also being allowable. Paying workers can often be a significant cost for a business, so bosses might be putting severe strain on their finances by failing to claim.
When asked about their more unusual business expenses, some owners reported some expenditure very out of the ordinary, including:
- A rabbit
- A bouncy castle
- A laser printer to write on a potato
- A full Lederhosen outfit
- Visiting a tantric workshop
Although some of these expenses might get a giggle at HMRC, any reasonable and genuine expense incurred as a direct result of business is legitimate.
Claiming your business expenses
Whilst HMRC guidance can be confusing, speaking to an accountant or other finance professional can help you make sure your business files any expenses it’s entitled to.
Accountants are familiar with all manner of expense claims, and will help you make sure you’re filing those which you’re entitled to claim for.
You can also ask for help with your bookkeeping to make sure you record every transaction correctly, helping you to claim back what you can!
Find more help with accounting and finance for your London-based business in our information centre.
