Ensuring business professionals are always available at any time and from any location, mobile phones have become an enterprise essential. Clear and continuous communication is key to building a business network of colleagues, clients, suppliers and other contacts, so you may be wondering if it’s possible to claim the cost of this crucial equipment back on your tax return and how they are classed as an expense.
Her Majesty’s Revenue and Customs (HMRC) has specific rules regarding how business expenses are considered and calculated, but these can sometimes be confusing. It’s not surprising that many enterprise owners seek out guidance from accountants to help them work out what purchases might be considered an allowable expense or considered part of capital allowances.
Using business account funds to buy personal items cannot be included allowable expenses but if they are for business use, they can be deducted from a tax bill. In limited companies, costs are subtracted from profit prior to tax, but if a mobile phone is used for non-business reasons, it is considered a company benefit.
Allowable expenditure
Costs judged allowable expenses by HMRC include office costs, such as phone bills, premises rental, uniforms, travel and training, among others. Firms using HMRC’s “trading allowance” of £1,000 tax-free cannot claim back expenses.
Capital allowances
Businesses using traditional accounting can sometimes claim a capital allowance when making a large business purchase – for instance, cars and equipment. If cash basis-style accounting is used, a vehicle can also be included as a capital allowance. Capital expenditure covers purchases that represent a long-term investment, so if a mobile phone was bought for business reasons and for many years of use, it could be considered applicable.
Purchases for personal and business use
If an item bought can be used for both personal and business reasons, companies can claim allowable expenses for any business-related costs. For example, a mobile phone used for business and personal reasons receives a bill for £300. If £150 was spent on personal calls, the company can only claim back £150 in business expenses.
Buying office equipment
A mobile phone strictly for business use can be claimed as either an allowable expense using cash-basis accounting or as a capital allowance for firms who are using traditional accounting.
Do you need expert accountancy services for your Goole business?
Understanding what business expenses you can claim back for your firm can make a substantial impact on its success. Thousands of small businesses and sole traders are completely unaware that many of the products and services they use can be counted as allowable expenses or as part of capital allowances, which means they are effectively overpaying HMRC every year.
Hiring a professional personal accountant can help with daily bookkeeping, but can also ensure you retain more of your hard-earned money. At Adaptive Accountancy, we work closely with our clients, understanding how they do business and offering specialist strategies that mitigate how much tax they pay on the annual returns we handle on their behalf.
If you are ready to start saving money for your business and avoiding overpayments, contact us today for advice and support.