We are often asked by our clients what expenses are allowable and which are not for tax purposes.
Unfortunately, there is no comprehensive or definitive list of what is or what isn’t claimable as each business is different, what will be essential for one business will be irrelevant for another. For example, motor vehicle expenses would be a key part of a taxi firm, but not for a physiotherapist who works from home or a shop that doesn’t make deliveries.
“Wholly and exclusively”
To solve this issue, HMRC has the “wholly and exclusively” concept, whereby an expense can be claimed against income or corporation tax if it is incurred for the sole purpose of the business activity and has no benefit beyond that. There is lot of case law surrounding this concept as over the years many court challenges have been raised and discussed around expenses being claimed.
When deciding if an expense is allowable or not you have to consider its necessity to the business and whether or not it benefits anyone outside of the business purpose.
For example, an accountant may purchase a suit to meet clients in, however they can also wear the suit to pick up their shopping on the way home from work, or wear it to a wedding at the weekend. Therefore, it is not wholly and exclusively for work purposes and cannot be claimed as a tax-deductible expense.
However, if a builder buys a hard hat, steel toe capped boots and hi-vis jackets for their work these would be allowable as they are about being safe and compliant whilst performing their role, they are unlikely to be worn when not at or travelling to work.
Another example would be petrol costs. If you were a driving instructor or delivery driver your job would involve being in a vehicle and the costs incurred for the vehicle would be allowable. If you were a pilot, the cost of getting to the airport would not be allowable as these costs are incurred getting the pilot in a position to perform their job, rather than the performance of the job itself.
Most people wear their own clothes to work, so the costs of laundering those are not allowable generally. Some roles that require specific uniforms to be worn may be able to claim the cost of laundering as they would not have these costs without the need to meet the specific requirement, nurses for example.
Some expenses can meet the criteria by being apportioned between business and private use. For example working from home will use personal internet and many people use their own private phones for work purposes as well, so the costs can be apportioned and the business element can be put against profits and taxes.
The concept can be difficult to apply sometimes, particularly if there is a clear business and private benefit to the expense. If you are unsure about whether an expense is allowable or not then its worth contacting an accountant to talk it through.