Claiming Business Expenses Checklist: How to Get Things Right

Claiming Business Expenses Checklist: How To Get Things Right
By Pawel Piejko | 2 minute read

Research shows that as much as 72% of self-employed in the UK handle taxes without any professional help. Most small business owners are probably aware of the fact that company purchases reduce their tax bill but not everyone knows how it works exactly.

Business expenses reduce your tax bill

In a nutshell, income tax is calculated as a percentage of taxable (net) income which is revenue minus allowable expenses. It doesn’t need a tax advisor to figure out that the more expenses you record the lower the tax bill. And thus, it makes sense to keep track of all company spending so that every qualifying purchase reduces company taxes.

The following checklist is a handy guide on how to ensure company expenses are recorded correctly.

1. Is this expense incurred wholly and exclusively for business purposes?

The general rule for claiming business expenses in most countries is as follows: you can only claim business costs that were “incurred wholly and exclusively for the purposes of the trade”. In case of a tax audit, you must be able to provide sufficient evidence to indicate that his relation exists.

Some purchases are dual-purpose, meaning that they’re for private and business use at the same time. You can claim some of these expenses if it’s possible to work out the proportion of business use vs private use.

2. Do you have a receipt, an invoice or a bank statement?

To claim tax-deductible expenses you need to collect evidence showing all details of the purchase. In most cases, this evidence includes receipts, invoices, and bank statements that contain sufficient information. Bear in mind, that sometimes it is possible to claim expenses even when you don’t have any of these documents but only in selected cases explained below.

3. Does the receipt contain all the details?

Minimum information on a receipt includes the number of the document, date, amount, company details, and the name of the product or service. Bank or credit card statements showing the details of where and when the funds were transferred to are acceptable as well.

Note that you don’t need to store paper versions of your receipts and invoices. Taking snapshots and storing files in the cloud is sufficient as long as the documents are intelligible, ordered by dates, and accessible in the case of a request from a tax auditor.

4. Can you claim this expense without a receipt?

There are a number of expenses that you can claim without receipts, invoices, and bank statements. In some cases, businesses are allowed to estimated expenses based on a flat rate. Some examples include car mileage or work from home expenses.

5. Can you reclaim VAT?

Businesses based in the EU who are registered for VAT may be eligible to reclaim VAT from expense-related invoices that contain all information required by the invoicing laws in the EU.

6. Is there a workflow for submitting business expenses?

To make processing business expenses more efficient and error-free, it’s best to establish a workflow.

Some small companies use a dedicated email address where all receipts and invoices are sent, and then verified, matched with corresponding payments, and recorded. While this workflow requires a lot of manual labor, it may work well in a small organization with a low volume of documents.

In order to optimize the workflow, you may consider using an invoice data capture solution, such as Arbitrue, AutoEntry, or Receipt Bank. These tools provide you with data extraction services, as well as handy storage for company documents that multiple employees can access at the same time. Non-finance people can upload receipts and invoices for processing, while accountants and bookkeepers approve extracted data and export files directly to the accounting records.


Written by Arbitrue

8,000+ companies use ClockShark to track employees and save time every month.

Get started today.