When you’re starting your own business, what business expenses should you expect? It’s important to be aware of the various expenses that come along with launching and maintaining a successful business. Knowing what costs are associated with running a business will help you budget appropriately and plan for the future.
There are many allowable expenses that not everyone is aware of in addition to the usual expenses, such as office costs, salaries, stock, bank fees, business insurance, business gas/electricity, business rates, advertising, business subscriptions, and many more.
Let’s take a look at some of the most common expenses that entrepreneurs should expect when launching their businesses.
Cost before the business starts
Costs before the business started can be dated back 7 years. This can include costs like laptops, legal fees, domain names and accountancy fees.
Entertainment
This one often causes confusion. Entertainment for entertaining clients is disallowable. However, entertainment for employees is an allowable expense. This is capped at £150 a year per employee.
Eye tests for employees
Many aren’t aware of this one. Eye tests can be claimed by employees that use computer screens. The costs of spectacles or contact lenses required solely for VDU use that an eyesight test shows are necessary.
Annual health check for employees
A business can pay for an annual health assessment for an employee without it creating a benefit in kind and being allowable expenses (one per tax year).
Trivial benefits
This is considered an allowable expense that can be given without tax implications to an employee. To qualify, it must be £50 or less; it can’t be cash or a cash voucher. It also can’t be a reward for work performance or in their contract of employment. This tax-deductible expense is ideal to be used for staff birthdays and Christmas.
Use of home office
The use of the home office has become more common in the last few years. This is a tax-deductible expense. There are two ways of calculating this: it can be claimed as a flat rate each week or a percentage of bills. We can advise on the best option for you.
Phone bills or broadband
If your phone is exclusively for business and in the company name, this can be claimed. It becomes a bit more complicated. However, if it’s a personal phone, but some costs can still be claimed, it would need you to split out the personal and business elements
Travel expenses
This one is a bit more complicated, and two methods could be used:
Business owns the vehicle
If the business owns the vehicle, you can claim the cost of the vehicle, tax insurance, repairs and running costs. However, if the vehicle is also used for personal use, it becomes more complicated as it is then considered By HMRC to be a benefit. This can result in a big national insurance bill for both employees and employers. Some vehicles incur a higher national insurance charge than others, so before purchasing a vehicle, it is worth asking an accountant for advice.
Claiming mileage for business use
This can sometimes work out better for a business for tax purposes than owning the vehicle. Mileage logs should be kept (there are some great apps out there that can help with this). To qualify, travel must be necessary for work purposes. Commuting between the home and permanent business place is not allowed. For cars and vans, 45p a mile can be claimed for the first 10,000 miles and 25p for every mile after. Motorcyclists can claim 24p a mile.
Regardless of which method you decide is best for your business, these costs can also be claimed when travelling for business: parking costs, tolls, and congestion charges.
Hotels and subsistence
Hotels, food and drink costs incurred while you travel away from your permanent place of work are an allowable expense. Although HMRC state these must be reasonable expenses. Subsistence incurred just after leaving home or arriving back home is considered disallowable by HMRC
Pension payments
Staff employer pension payments are an allowable expense. Director pension payments are also allowable and tax deductible. Directors can put up to £40K a year into a pension, which can be a great corporation tax saving
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Everything you need to know about accountants
What do accountants do?
Accountants are responsible for evaluating, measuring, and reporting financial information to a variety of stakeholders. They help individuals and businesses make informed financial decisions by providing important decision data.
Accountants use different techniques to analyse a company’s business operations, review their financial statements, assess the impact of taxes on profitability, study cash flow situations, classify business assets and liabilities accurately, and determine performance against objectives set out in the budget process—all to improve efficiency and profitability.
What are the types of accountants?
The role of an accountant for a small business is invaluable. An accountant can help create and maintain accurate financial records, track expenses and income, manage payroll, analyse financial performance, and generate meaningful reports for both internal use and external stakeholders such as lenders or investors.
Accurate financial records are essential to ensure the proper filing of taxes, secure insurance coverage if needed, obtain financing from lenders or investors if necessary, and provide an ongoing snapshot of the company’s finances. Accounting software has made this process much easier than it used to be; however, having someone knowledgeable in finance can still go a long way toward ensuring that all areas are covered.
What qualifications should an accountant have?
An accountant should have an inherent understanding of business operations and the financial implications of decisions made by management. They should be familiar with accounting principles, standards, and procedures to ensure accuracy in the preparation and presentation of financial information.
At a minimum, an accountant should possess a bachelor’s degree or higher in accounting or related fields like finance. Additionally, many organisations require accountants to maintain certain certifications such as Certified Public Accountant (CPA) or Chartered Professional Accountant (CPA) designations.
How much is an accountant for small businesses in the UK?
The cost of hiring an accountant for a small business in the UK can vary greatly depending on the size, type of business, and services you want. Contact Direct Peak now and ask us for a quote!
Is hiring an accountant worth it?
Hiring an accountant can be a great way to save time and money, increase efficiency, and ultimately make better business decisions.
Accountants are trained professionals that understand the complexities of financial management and taxes. They can help you navigate the full range of your business’s financial aspects, like cash flow projections, tax strategies, budgeting, compliance issues, and even bookkeeping. Accountants will also ensure that every financial move you make is in accordance with all relevant regulations, so you don’t run into any legal trouble.
Dedicated Contact
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Tax Efficient
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.
Quick Turnaround
We aim to turn around the annual accounts and tax returns quickly to give you visibility of your tax bill well in advance of it being due.
Business Expenses to consider when starting up
When starting a new business, there are several expenses you should expect to incur. The specific costs can vary depending on factors such as the type and size of your business, industry, location, and your business model. Here are some common expenses to consider:
- Startup Costs: These are one-time expenses incurred at the beginning of your business journey. They may include market research, business registration fees, legal and professional fees, logo and branding design, website development, equipment purchases or leases, and initial inventory.
- Licenses and Permits: Depending on your industry and location, you may need to obtain various licenses, permits, or certifications to legally operate your business. These can include business licenses, zoning permits, health and safety permits, professional licenses, and more. Each may have associated fees.
- Rent or Lease: If you need physical space for your business operations, you’ll have to consider the cost of renting or leasing a commercial property. This includes monthly rent, security deposits, utilities, and insurance.
- Employee Expenses: If you plan to hire employees, you’ll need to budget for their salaries or wages, benefits such as health insurance and retirement plans, payroll taxes, and potentially training costs.
- Marketing and Advertising: Promoting your business is crucial for attracting customers. Allocate funds for marketing activities such as website optimisation, social media marketing, online ads, print materials, and other advertising campaigns.
- Inventory and Supplies: If you’re selling products, you’ll need to purchase inventory. Estimate the cost of acquiring initial inventory and ongoing restocking needs. Additionally, consider the expenses associated with necessary supplies or materials for your business operations.
- Technology and Software: Many businesses require technology and software to function efficiently. This includes computers, laptops, POS systems, industry-specific software, accounting software, and other tools. Factor in the cost of purchasing or subscribing to these technologies.
- Utilities and Services: Don’t forget to account for recurring expenses like electricity, water, internet services, phone lines, and security systems. These costs vary depending on your location and business needs.
- Insurance: Protecting your business from potential risks is essential. Consider the cost of general liability insurance, property insurance, professional liability insurance, workers’ compensation insurance (if applicable), and any other types of coverage relevant to your business.
- Professional Services: Depending on your needs, you may require the services of professionals such as accountants, lawyers, consultants, or bookkeepers. Their fees should be factored into your budget.
It’s important to create a comprehensive business plan and conduct thorough research to estimate these expenses accurately. Remember that unforeseen costs may arise, so having a contingency fund is wise.
