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It’s self-assessment tax return season and up and down the country people are eyeing items around the office wondering what they might or might not be able to claim as an allowable business expense.
This is a perennial topic of discussion here on UKBF and in the past few weeks we’ve had some interesting specific queries.
Forum user samuel5 wanted to know, for example, if he could claim first-class travel as a business expense:
So, some airlines have business class and first class. Is it OK to fly first class and put it through the bizo or would HMRC frown upon it? Because if I booked a massage and a really expensive meal for myself through the bizo obviously they would slap my wrists, but this is essentially what first class is compared to business class.
Now, let’s be clear, I’m not an accountant, so I wouldn’t dare give accountancy advice, but I reckon the query above illuminates an important principle.
That is, it’s not how you travel, the cost of your ticket or the associated perks that matter – it’s the reason for travelling.
But as long you’re travelling for, say, an important trade conference, or to make a sale face-to-face, HMRC probably won’t be concerned about how comfortable your journey was.
You probably could expect a few probing questions if you charter a yacht or a personal jet, mind.
The line from HMRC guidance you always need to come back to is ‘wholly and exclusively’, if you’re a sole trader, or the slightly more stringent ‘wholly, necessarily and exclusively’ if you’ve set up a limited company.
For example, HMRC would be much more likely to challenge your travel claim if it was for your entire family and the destination was a holiday resort you had no particular business reason to visit. And that’s the case even if you managed to arrange one or two business meetings to justify the trip.
Another member, Angelic, asks a really interesting question: how about a dog?
My wife is a private practice mental health counsellor. She bought a dog to use in her practice as a therapy dog. It has proven very successful in helping clients with their problems. Is any of the expense in buying and keeping the dog allowable for tax purposes?
At face value, this is an amusing idea, and prompted some of UKBF’s trademark snark – “Are you going to put your dog in your stationery draw on Friday night and get it back out on Monday morning?”
But it actually highlights another key principle: it is quite acceptable to make a partial claim for items used partly in the running of your business.
The most mundane example, and the most frequently trotted out, is around utilities bills for home offices. Generally speaking your electricity bill is neither wholly exempt nor wholly allowable. Instead, you or your accountant will have to do a few sums to come up with a sensible calculation of the proportion of your electricity bill that applies to your work.
Let’s say you work eight-hour days in a single room. On that basis, you might do a quick tot up that divides the total bill by the number of rooms in the house, then by the number of hours per month, roughly speaking, that you’re actually at your desk. You can then claim that chunk of the overall cost as an allowable expense. Just make sure you keep the paperwork in case HMRC has any further questions about how you arrived at your numbers.
So, back to the dog. My instinctive reaction was that as long as it really is a working animal, albeit a non-traditional one, owned by the business, then at least part of the costs of keeping and caring for it ought to be allowable.
There’s a surprising amount of debate online about this topic, though, with all kinds of testing examples. For example, via our sister publication AccountingWEB, here’s an attempt to claim a dog as a business expense because it engages in PR activity on behalf of the company:
The dog would go to the office every day and live with the director on an evening and weekend. The dog would also accompany the director to sales meetings… and be kitted out in company merch. (Collar.)
Which brings us to a third important point: people know, in their heart of hearts, when they’re trying it on.
Back in January, HMRC compiled a list of some of the most outlandish expenses claimed it had received as part of the self assessment process. It included pet insurance, a 55 inch TV and soundbar, five years’ worth of thermal underwear, a music streaming subscription and a holiday for five to Nigeria.
If you catch yourself going out of your way to alter your behaviour to justify claiming something as a business expense, it might be time to pause, take a breath and think about whether you want to be followed around the office by a branded Great Dane just to save a few quid on Pedigree Chum.