Accountancy Frequently Asked Questions

Can I claim the VAT back on entertaining expenses?

The general rule is that VAT input tax is NOT recoverable on entertaining expenses. However there are some exceptions, and these are:

The VAT incurred on staff entertaining in order to maintain or improve staff relations IS recoverable. If for other purposes it is NOT allowable, so the VAT incurred by employees acting as hosts is NOT recoverable.

Business trip meals come under the rules covering subsistence (and not entertaining) and ARE generally recoverable, providing that any entertainment element is secondary to the subsistence element.

Can I offset the cost of entertaining and gifts against my profits for Income and Corporation Tax purposes?

The rule is:

Subsistence expenses ARE allowable provided they are incurred wholly and exclusively for the business.

Entertaining IS NOT allowable.

And to clarify this further:

Subsistence:

Incidental overnight expenses (e.g. laundry, newspapers, phone calls home) are allowable as long as they do not exceed certain limits (£5 per night in the UK and £10 per night outside the UK!).

Excess expenditure on meals whilst working away from the normal workplace ARE generally allowable.

With limited companies the expense is generally allowable for Corporation Tax but if ‘not allowable’ above it gives rise to a benefit in kind on the employee.

Entertaining:

The disallowance applies to gifts to any person unless they (a) carry a prominent advertisement, (b) do not consist of food, drink, tobacco etc., and (c) do not cost in total more than £50.

Xmas parties – reasonable expenditure up to £150 (including VAT and any transport costs) per head is allowable. The expenditure limit may in fact be split between more than one event (and doesn’t have to be at Xmas). Casual hospitality is not counted as a party!

I'm buying a mobile phone - can I claim the expense against my profits?

Providing the phone is used for the business then the answer is yes. HOWEVER, if the business is carried on by a limited company it is ESSENTIAL that the contract is taken out by the limited company, and in the limited company's name, otherwise there will be a charge to Class 1A National Insurance at the rate of 12.8%.

I'm buying a new car for my business, should I lease it, borrow the money or buy it outright?

The answer to this is 'it depends'! Generally speaking it will not make an awful lot of difference during the total period of ownership of the vehicle, but there will be timing differences of when tax relief can be claimed, dependent on which option you choose.

There is also the VAT position to consider, as well as the potential benefit in kind if the car is being bought through a limited company.

My advice is to find out the exact costs for the various options and then give me a call, and I can advise for your precise circumstances.

I want to reduce my taxable profit by buying a piece of equipment for the business, how much will this reduce my tax bill by?

Again 'it depends'!

The first thing I say, at the risk of stating the obvious, is that there is little point in spending £1000 to save £210, unless the equipment is definitely needed. Don't spend money purely to save tax!

Next, if there is some equipment you will need in the next few months, then it is usually worth making the expenditure before the accounts year end rather than after it. I say 'usually', as there will be certain circumstances where it won't be beneficial, these being dependent on the business profitability and the amount of the expenditure. But as a general rule it is definitely worth considering.

Normally the benefit derived from getting the expenditure in before the year end will be a timing difference only - the tax relief will be given a year earlier than if expended after the year end.

How much tax relief will depend on your particular circumstances, and again the best option is to give us a call and we will give me a more precise idea.

For more in-depth information on all things tax and business related - please follow the link below to look through our business factsheets - there is advice on lots of different areas of running a business - well worth a look - Fact Sheets.