Disallowable Expenses for Corporation Tax
Understanding the rules around disallowable expenses for Corporation Tax is a necessary aspect of the successful, compliant running of your business. Calculating your company’s Corporation Tax liability can, however, be complex: what is a disallowable expense for Corporation Tax and what expenses are not permitted?
At Perrys Chartered Accountants, our expert team of Corporation Tax specialists are highly skilled and experienced in all aspects of Corporation Tax and the execution of company accounts. We are here to ensure that you keep your Corporation Tax liability to a minimum, whilst making certain that all aspects of your accounting are correct and compliant.
To assist you in understanding disallowable expenses for Corporation Tax, we have compiled this guide to make it easier for you to ascertain your Corporation Tax liability. Of course, if you have any further questions regarding your company’s requirements in any aspect of accounting, please do not hesitate to get in touch with the team at Perrys Chartered Accountants. We are always happy to assist you in any way we can.
What expenses are disallowed for Corporation Tax?
The general rule for expenses to be deductible from company profits is that they must have been incurred wholly and exclusively for the purpose of the trade. Expenses which provide personal benefit to the directors or employees may not necessarily be disallowed but could result in a benefit in kind, which is taxable on those individuals.
Entertainment
Staff and client entertainment expenses are treated differently under the Corporation Tax rules, compared to those in place for an unincorporated business. Staff entertaining is an allowable cost, but any element of this which incorporates client entertainment is not. A Christmas party held exclusively for staff would qualify, whereas if any clients were invited to the party, it could lead to the cost being disallowed.
Expenses incurred in entertaining clients must be added back to your profits on your company tax return.
If, however, the staff entertainment is not an annual function, open to all staff members, or if the entertainment exceeds £150 per person per year, there will be personal tax implications on the employees themselves.
Capital Allowances
If you purchase assets that are kept for use in your business, including equipment, business vehicles and machinery, these are Capital Allowances which can be claimed for. Depreciation, however, is not an allowable deduction.
Termination and Redundancy
The rules around Corporation Tax disallowment for redundancy and termination payments are complex. You can find out more about this area of Corporation Tax disallowable expenses on the gov.uk website.
Relief Claims for Disallowable Expenses
There are several areas in which a company may be able to claim relief. These include:
- Trading losses
- Disincorporation relief
- Relief on goodwill and other relevant assets
- Terminal, capital and property income losses
- Research and Development relief
- Reliefs for creative industries
- The Patent Box
To learn more about which of these reliefs may apply to you, get in touch with our Corporation Tax specialists.
Other Disallowable Expenses for Corporation Tax
Accrued Wages
Bonuses and other wages accrued in the accounts are permitted as a Corporation Tax deduction as long as the amount is paid to the employee within 9 months of year end
Repairs
Expenditure incurred on repairing items used specifically for the business, such as redecorating the office or fixing a broken machine, are allowable deductions so long as there is no major enhancement of the item.
Customer Debts
If a debt is no longer recoverable, then a deduction may be allowed. This only applies to specific customer debts, so it’s worth checking with us if you are unsure.
What cannot be claimed as a Corporation Tax deduction?
These are the main expenses for which a Corporation Tax deduction is not permitted:
- Certain legal fees
- Clothing
- Depreciation
- Client entertainment
- Certain business gifts
- Accrued pension contributions
- Fines and penalties
- Car lease costs
There may be others which need to be taken into account. Please check with the team at Perrys Chartered Accountants regarding any item not specifically listed or anything else you may be unsure about.
Find out more about Disallowable Expenses for Corporation Tax
To check whether something in your company accounts is disallowable for tax purposes, or for more information about Corporation Tax expenses, get in touch! Perrys Chartered Accountants have the knowledge and experience required to answer any questions you may have and will be able to offer Corporation Tax advice and company accounts services designed to suit the needs of your business.
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