I am sure we are all aware that when we are generating revenue, we are most certainly incurring costs, but what costs are deductible for tax purposes? HM Revenue and Customs have lists upon lists of how expenses can be claimed, and more importantly, what they can be claimed for.
To simplify things, expenses can be categorised as either “allowable” or “non allowable” deductions for tax purposes.
As accountants, it is our job to help you decipher what you can and cannot claim deductions for in your limited company, partnership, or sole trade.
Some allowable expenses you may be aware of as part of the dentistry industry could be your laboratory costs and the cost of paying your staff and associates. What you may not know is that there are a whole host of other expenses you may not have considered as allowable deductions, and this is where the term “wholly and exclusively” for business use was coined.
The ‘wholly and exclusively‘ rule means that expenditure is only deductible in calculating business profits if it is incurred only for business purposes.
Let’s break down a few commonly missed expenses you could be claiming for:
Clothing and Laundry
The only clothing item that is an allowable deduction is dental scrubs. This includes the cost of having a logo embroidered. Other items of clothing that could be worn outside of work hold a personal element making them disallowable. If your workplace does not provide laundry services, you can claim the cost of laundering your scrubs at a flat rate of £125 per year.
Books and Courses
Expenses such as magazines, trade publications and course materials that continue to top up your existing skills may be an allowable deduction if you are self-employed. Costs incurred as part of your business training staff are also allowable for tax purposes.
Christmas parties and team lunches are common in most workplaces, but not everything you spend might be claimable. The limit for exemption is the cost per employee must not exceed £150 in the year; any more than this and there may be additional national insurance obligations.
If you have internet in your practice, then this is an allowable expense. However, if you are self-employed and have a home office for work then it is likely you use your own home internet for work purposes. You can therefore still claim a proportion of this against your business profits. You will need to assess the proportion of use between business and personal in order to make a claim.
Mobile Phone Costs
Ideally you would have two phones; one exclusively for work which you can claim fully as a business expense, and a personal phone which you cannot make a claim for. If you do not have two separate phones, it is understood that you may use your own mobile for some work reasons. In this case you can split the cost of the contract between work and personal use, then make a claim for the business proportion as an expense. Please note that if you run a company, each director can run 100% of their mobile phone costs through the business.
Memberships or annual subscription fees to a professional body can be claimed as an expense. There is a list of eligible organisations, but it is important to note that British Dental Association and General Dental Council are included.
Although commuting from home to your usual place of work is not an allowable expense, it does not mean all costs associated with travel are sunk costs. For example, if you travel between multiple practices on one day, the costs of rail fare or a mileage claim (45pence per mile) can be claimed as an allowable deduction. You can also claim for the cost of any meals or accommodation for work-related journeys, as long as there is not a personal element to this expenditure.
Use of Home
Costs associated with working from home can also be claimed. The way in which this claim is made will vary depending on if you are a sole trader or have your own limited company. We have written a separate article on this topic alone.
It goes without saying that you should keep a good record of all these expenses broken down and any relevant receipts or invoices should HM Revenue and Customs wish to see evidence of cost claims. We have additional articles for your reading pleasure that further breakdown some of these costs and their conditions, plus some that are not included above.