Running any business incurs several costs. Whilst some business expenditure is allowable (eligible to claim back), others are not. When you claim the expenses incorrectly, you are liable to fines, but failing to claim your allowable expenses can affect the growth of your business and its profitability.
Do business owners know what qualifies as a business expense?
A survey of over 1000 small business owner shows that more than 80% do not understand what qualifies as a legitimate business expense, about 55% of them admitted to searching online to ensure they have valid claims, and 13.5% had to consult their accountant or bookkeeper to get a professional opinion.
In this survey, about 12% of small business owners had no idea what their allowable expenses were, and 2% were sceptical about filing for allowable business expenses for fear of being fined by the HMRC.
How much are unclaimed expenses costing businesses?
About 65% of small business owners say that they have failed to file business expenditure at some point. Some of these business owners have over £10,000 unclaimed allowable expenses.
Research suggests that there are over £5.6 billion unclaim business expenses because many SME owners are hesitant to file their claims.
What prevents SME owners from claiming their legitimate expenses?
Over 40% of small business owners say they fail to claim their business expenses because of lost invoices and receipts, while 36% were unsure whether they have met the HMRC’s requirements, and 8% failed to claim theirs for fear of penalties.
About 41% of small business owners said they didn’t have the time or weren’t bothered about claiming their business expenses, so they miss tax reliefs that would have benefited their business.
Those expenses that seem insignificant can add up to a significant sum of money, seriously affecting the business’s profitability.
Expenses least claimed by SME owners
The survey on small business owners showed that 41% are sceptical about claiming expenses in food and drinks due to the HMRC’s rules on what qualifies as allowable expenses. About 43% are reluctant to file claims for clothing and uniform even though businesses can file claims on personal protective equipment such as safety boots. 33% do not claim vehicle expenses, including tax, fuel, and insurance, even with the HMRC permitting claims of 45p per mile for the first 10,000 business miles in a year using a personal car.
Failure to claim vehicle expenses may be due to the slightly different rules that apply to sole traders and limited companies.
Claimable strange expenses
Many small business owners involved in the survey reported expenses for some unusual things like giving staff gifts, entertaining clients, and COVID tests. Other out-of-ordinary expenses small business owners have claimed include:
- Taking a customer to a strip club
- A Venus flytrap plant
- A fart machine
- Materials used to decorate a car as a space rocket
- Two live lobsters
- Cremation costs
- A full Lederhorsen outfit
- Visiting a tantric workshop
- Visiting Victoria Falls National Park, Zimbabwe
- An adult-sized pink tutu
Some of these expenses claimed may seem outrageous, but they are genuine and reasonable, the HMRC would approve of it.
How to get maximum benefits from expenses while avoiding fines
Interpreting the HMRC’s guidance may be difficult for many small business owners, so it’s best to consult a financial professional to help simplify the guidance on filing expenses. This can help you maximise your claims and keep your business in good financial standing.
If you carry out your bookkeeping yourself, you may want to consider using accounting software that makes it easy to keep records of your expenses. Using the right bookkeeping software can help you record all financial and tax documents so that you can lay claims for all your allowable expenses.
However, accountants understand the intricacies of claiming expenses and ensure you file for all claims that you are entitle to.
Contact The Accountants London today on 020 7183 2362 to get small business accountants in London who would help you maximise benefits from your expenses.