Allowable costs for tax purposes include the cost of goods bought for resale including the cost of raw materials and all costs of production after adjusting the cost of sales for changes to the opening and closing stock of stock including stores being held, work in progress and finished stock.
The adjustments of opening and closing stock values being to adjust the cost of sales to represent the cost price of the goods included in sales turnover. Also included in the calculated cost of sales are commissions paid and discounts given to suppliers.
Contractor costs are allowable at the gross invoiced value before deduction of any with holding taxes. Where sub contractors costs and expenses directly produce goods or services for resale they may also be considered for inclusion in the cost of sales.
All employee costs are included as allowable costs at the gross value paid including salaries and wages of both employees and directors of the business and temporary staff and consultants employed by the business. In addition to the gross wages businesses may also claim employment costs such as fees paid to employment agencies, bonuses paid to staff and the costs and contributions made to pension schemes on behalf of staff employed.
Employer national insurance and additional medical insurances are allowable as business expenses.
Travelling and distribution costs are permissible business expenses and include running costs of cars, vans and lorries which would consist of fuel and servicing costs, repairs, insurance, vehicle licence fees and membership of breakdown organisations. Also included in travel costs would be bus, train, air and taxi fares, and hotel room costs including private accommodation and meals or subsistence allowances in respect of food during the business trip.
Allowable expenses fro property include business rent, rates and other invoices for use of the property including local government charges for general rates and water rates. The cost of maintaining the property, repairs and maintenance and environmental expenses include light, heat and power costs plus expenditure on property insurance and security arrangements.
The same costs as applicable to use of the home are also claimable in so far as the extent of the use of the home for business purposes.
Repairs and maintenance of tools and equipment would also include renewals of smaller items of expenditure on tools and equipment where these items had not been capitalised as fixed assets.
General administrative costs of running the business would include telephone and stationery costs, fax and mobile phones, printing and postage, computer software and small office equipment costs that have not been capitalised. Other general costs may include trade and professional journals and subscriptions including the expenses of employees in respect of these items.
Advertising and promotion costs in all media areas such as newspapers, magazines, websites, television, posters, mail shots and free samples are allowable. Internet website costs including hosting and promotion would be advertising expenses.
Business bank interest payable including business loans and financing arrangements on overdrafts and loans plus bank charges and business credit card charges are claimable. Other allowable expenses would include hire purchase interest, leasing payments and other finance payments. Financing costs also including the administration charges for the potential various finance arrangements.
Legal and professional expenses to be claimed are accountants, solicitors, architects, surveyors and other fees from members of professional bodies including professional indemnity insurance.
Specific sales income which has been included in sales turnover in the current or previous years and remains unpaid and unlikely to be recovered would be designated as a bad debt and may be deducted as an expense but also has to be written back if the money owed is subsequently recovered.
Depreciation on fixed assets that have been capitalised and the profit and loss on sale of assets are not claimable but instead replaced with capital allowances which write off the costs of those fixed assets over a period of years according to the tax rates and rules applicable.
Any other costs properly incurred in the business may also be claimed subject to specific items disallowed under the tax authority rules
Terry Cartwright, CEO DIY Accounting, a qualified accountant in the UK, designs Accounting Software on excel spreadsheets and Payroll Software for small to medium sized business providing a complete accounting solution and also supplies Company Formation packages for new limited liability companies.
