The Income Taxes Acts broadly define the deductions that may be made from business profits as 'any disbursements or expenses, being money wholly and exclusively laid out or expended for the purposes of the trade or profession' subject to specific items which are not deductible such as entertainment and clothing. There is a longer list of exclusions but for the average business it can be assumed that genuine business expenses are deductible from profits for tax purposes.
Travel expenses are generally deductible but travel from home to work is a problem for businesses which trade from home in that every journey to see a customer or client is also a journey from home to work but there is a concession whereby travel to a temporary workplace is deductible provided that time spent at that location is less than 40% of total working time. If time spent at a regular location is greater than 40% then travel costs are deductible for a limited period of 24 months or for a lesser period to the date at which there was an expectation that work at that location would be for more than 24 months.
Private motoring costs are also a problem as it is impossible to calculate the exact amount attributable to business and private use. In the accounts of sole traders and partnerships this is achieved by making a percentage deduction based on business mileage but in companies where a car is provided for business and private use the employee/director is taxed under the PAYE benefits rules which can be quite expensive and so many employees provide their own cars and recover the cost of business use under the 'fixed profit car scheme' which allows reimbursement at rates which are currently 40p per mile for the first 10,000 miles and 25p thereafter. In many cases employers pay less than the HMRC approved rates and it is then possible for the employee to claim the difference in his own self assessment annual tax return as an expense in employment.
Subsistence expenses are also generally deductible and HMRC has published benchmark rates with effect from 06Apr09:
Unreceipted rates: breakfast rate
(before 6am) £5.00; one meal rate (5 hours) £5.00; two meal rate (10 hours) £10.00; late evening meal rate (after 8pm) £15.00.
The actual cost may
be reimbursed when a receipt is provided for reasonable expenditure and it should be noted that the early and late rates may only be used when they are
incurred on an irregular basis.