Allowable expenses

So, what business expenses will the Revenue let you take off your total income? The two rules, in tax-speak, are that you can claim for any expenses that are ‘wholly and exclusively for the purposes of the business’ and the expenses must be ‘revenue and not capital’ in nature. There are also some expenses, like business entertainment, which are specifically prohibited from being allowable.

The wholly and exclusively rule means that any expenses which have a mixed personal as well as a business purpose are not allowable. The classic example is clothing. Although you may say that you only ever wear business suits for work, the Revenue will argue that there is a mixed business and personal purpose because you also wear this clothing to keep warm and for reasons of personal decency.

But expenses don’t have to be necessary to the running of your business, or even commercially sensible, in order to be allowable. For example you might decide to spend £10,000 on professional photographs for your business website. It’s clearly not essential to your business that you invest so much, and it might be extremely bad value for money, but it’s also clearly wholly and exclusively for the purpose of your business, so it’s allowable.

The revenue and not capital rule means that you can’t get tax relief on the cost of acquiring an asset of continuing benefit to the business. That might include the cost of buying a car or having a blacksmith build dungeon equipment for you. There are separate rules which allow you to claim relief on capital expenditure. Of which more later.